Author: Web Desk

Growth in global trade flows will be dramatically lower than expected in 2023, according to a report issued Wednesday by the World Trade Organization, as Russia’s invasion of Ukraine and global central banks’ efforts to fight inflation continue to take a toll.

The WTO projected that after expanding at a 3.5% pace in 2022, growth in the trade of goods in 2023 will plunge to just 1%. That’s considerably below the agency’s most recent estimate from April, which had trade expanding at a 3.4% clip next year.

WTO analysts cited various causes for the expected slowdown. Among other things, the increase in the price of energy, staple foods, fertilizer and other goods brought on by the war in Ukraine will continue reducing consumer spending on other items. Additionally, interest rate hikes in the United States and other advanced economies are expected to constrain consumers further, while China’s continuing struggle to manage COVID-19 has created ongoing production problems.

“Policymakers are confronted with unenviable choices as they try to find an optimal balance among tackling inflation, maintaining full employment and advancing important policy goals such as transitioning to clean energy,” WTO Director General Ngozi Okonjo-Iweala said in a statement.

‘No surprise’

Jake Colvin, president of the National Foreign Trade Council, told VOA that even without the geopolitical shock of Russia’s invasion of Ukraine and problems with the global supply chain arising from the COVID-19 pandemic, there were other factors that made a slowdown in trade growth likely.

“It’s no surprise that while the party was raging for the global economy in the wake of COVID lockdowns, that the inflation hangover is real,” Colvin said. “There’s likely to be downward pressure on global trade for the foreseeable future, as this report points out, because of persistently high inflation, as well as ongoing supply chain challenges.”

Colvin pointed out that the recent surge in the strength of the U.S. dollar against other global currencies would also complicate trade issues.

“The world is grappling with the strength of the U.S. dollar,” he said. “Obviously, a strong U.S. dollar is good for U.S. consumers. It makes imports less expensive. But it makes U.S. exports more expensive. So, a strong U.S. dollar is always a headwind for American exporters. And it also is a challenge for countries around the world that have to buy things in dollars, including energy.”

Growth projections vary

The 2023 growth rates for North America and Asia are expected to be slightly above the global trend, at 1.4% and 1.1%. However, they will be significantly lower than in 2022. The WTO projects that North America will end this year with a 3.4% growth in trade, while Asia will experience 2.9% growth.

Regions projected to have positive but below average growth in 2023 include Europe at 0.8% and South America at 0.3%. That compares with projected full-year 2022 growth of 1.8% for Europe and 1.6% for South America.

Regions that can expect negative growth are Africa at -1.0% and the Middle East at -1.5%. However, both are expected to end 2022 with annual growth much higher than the global average, with Africa at 6.0% and the Middle East at 14.6%.

The seventh region in the assessment is the Commonwealth of Independent States (CIS), a free trade bloc made up primarily of former satellite states of the Soviet Union and dominated by Russia. The data indicate that the CIS will see growth of 3.3% next year. However, the report said, that apparent growth will reflect only a partial recovery from the sharp -5.8% slowdown in trade growth the bloc is projected to have suffered by the end of 2022.

China’s challenges

The decline in forecast growth for Asia is driven in large part by China, which is experiencing reversals in imports and exports. This is the result of a combination of factors, but the most notable among them is COVID-19.

“The zero-COVID policy that President Xi [Jinping] has been pursuing … really put the squeeze on the Chinese economy,” Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, told VOA. “Production is not there for what could be many export orders. Sometimes the ports are just not functioning as they normally do, so that really has hit the exports.”

He continued, “At the same time, China is a big importer, from [around] the world, and especially from many developing countries, which send a combination of raw materials and intermediate products to China, which are then made into finished products. … So China’s imports have been pretty slow lately, and this is hurting all its trading partners around the world.”

Spillover effects

In addition to a slowdown in orders from China, countries in the developing world are likely to see fewer orders for their goods from the U.S. and Europe than they have in the past, due in part to consumers being constrained by inflation and high interest rates.

Developing countries are facing the pernicious combination of lower revenues from exports, higher energy and fertilizer prices, and disruption in the global food supply. Added to that is the rising value of the U.S. dollar, which many developing countries need to purchase in order to transact business internationally.

A major concern, according to the WTO, is that this “could lead to food insecurity and debt distress in developing countries.”

Warning on restrictions

Okonjo-Iweala warned countries against reacting to Wednesday’s report by imposing export bans and taking other restrictive trade measures.

“While trade restrictions may be a tempting response to the supply vulnerabilities that have been exposed by the shocks of the past two years, a retrenchment of global supply chains would only deepen inflationary pressures, leading to slower economic growth and reduced living standards over time,” Okonjo-Iweala said.

“What we need is a deeper, more diversified and less concentrated base for producing goods and services,” she added. “In addition to boosting economic growth, this would contribute to supply resilience and long-term price stability by mitigating exposure to extreme weather events and other localized disruptions.”

Source: Voice of America

Delegates at Africa’s biggest oil conference have expressed concern about rising prices after the Organization of Petroleum Exporting Countries, plus nonmembers who also export oil, decided this week to cut production targets.

The majority of the oil cartel’s 13 member states are in Africa, but many African countries have to import refined oil.

Speaking at the Africa Oil Week conference in Cape Town, Omar Farouk Ibrahim, secretary-general of the African Petroleum Producers Organization, said the move was aimed at ensuring stability in the global market and ensuring that prices don’t fall too low.

“I believe it’s the right thing they did in order to save the industry,” he said, “and I totally think that every country has the responsibility to protect the interests of its citizens. And if by reducing production they see that as in their best interest, so be it.”

Rashid Ali Abdallah, executive director of the African Energy Commission, said it was too early to tell what the impact of the planned cuts would be.

“I hope that the price is not shooting up, because in Africa we depend on oil products in power generation,” he said.

Natacha Massano, vice president of Angola’s National Agency for Petroleum, Gas and Biofuels, said she wasn’t sure how the announcement would affect her country. Angola is one of the two biggest oil producers in Africa; Nigeria is the other, and both are OPEC members.

“Some countries will be affected more than the others,” Massano said. “Some are benefiting — of course, the producers may benefit from the high prices, but at the same time they are paying also for all other commodities.”

Saudi Arabia, OPEC’s biggest producer, has denied colluding with Russia on the production target cut.

However, Herman Wang, managing editor of Vienna-based OPEC and Middle East News, said one couldn’t tell what was discussed behind closed doors. He said he thought the cut was clearly “a big win for Russia.”

“You know that they are trying to raise money for their war effort in Ukraine,” Wang said. “Again, like all these OPEC countries, [Russia is] heavily reliant on oil revenues, and when you have a case where the outlook for the war is quite dire, [Russia is] needing this revenue. And the other impact of this is that higher oil prices make it harder for the West to enforce and impose their sanctions on Russia. So that might have been part of the calculation here for Russia in terms of trying to get this production cut done.”

OPEC+ members said the group would cut production targets by 2 million barrels per day.

U.S. President Joe Biden called the move shortsighted, noting the global economy has been dealing with the negative impact of Russia’s invasion of Ukraine.

Source: Voice of America

The World Trade Organization predicts global trade growth will slow sharply to 1 percent in 2023, down from the expected high of 3.5 percent this year.

WTO economists say trade has played a key role in keeping the global economy running throughout the COVID-19 pandemic. While merchandise trade plunged amid lockdowns in 2020, they note it subsequently rebounded, keeping the world supplied with food, medicine and other essential goods.

However, they say multipronged crises, including the pandemic, climate shocks and the war in Ukraine, continue to cause supply chain disruptions. Fiscal and monetary policies and inflationary pressures, they note, are causing energy and commodity prices to rise. They say low-income developing countries in particular face serious risks from insecurity and debt distress.

WTO Director-General Ngozi Okonjo-Iweala says most regions will likely register slightly positive export growth in 2023, with the exceptions of Africa and the Middle East. She expects both regions to experience negative export growth. World GDP next year is expected to slow to 2.3 percent, she says, down nearly a full percentage point from the WTO’s previous estimate.

“Policymakers face unenviable choices as they attempt to find an optimal balance among fighting inflation, maintaining employment and advancing important policy goals such as the transition to cleaner energy,” Okonjo-Iweala said. “Trade restrictions may be a tempting response to economic distress, but these would only deepen inflationary pressures and reduce living standards.”

Okonjo-Iweala says free trade generates growth and can help keep prices from rising. For example, keeping markets open for food trade, she says, will increase the availability of essential foodstuffs and maintain downward pressure on prices.

“Our monitoring work on food trade has pointed to some recent backsliding on restrictions, so we need to remain vigilant,” Okonjo-Iweala said. “Looking ahead, a better response to the supply chain vulnerabilities exposed by the past two years is to build a more diversified, less concentrated base for producing goods and services.”

Diversification will boost economic growth and contribute to supply resilience and long-term price stability, she says, adding it also can help meet current and future economic challenges.

Source: Voice of America