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Despite a Challenging Environment, Trade Growth is Likely to Pick Up in 2024.
The latest edition of the WTO's "Global Trade Outlook and Statistics" forecasts a gradual recovery in the volume of world trade in goods in 2024 and 2025. This follows a contraction in 2023 due to the lingering effects of high energy prices and inflation in advanced economies, mainly Europe. So, what do the forecasts point to?
In particular, trade in goods is expected to grow by 2.6 percent in 2024 and 3.3 percent in 2025, after falling by 1.2 percent in 2023. However, regional conflicts, geopolitical tensions, and economic policy uncertainty warn of a downside risk.
In value terms, trade in goods fell by 5 percent to USD 24.01 trillion in 2023, but this decline was primarily offset by a 9 percent increase in service trade, which reached about USD 7.54 trillion. Total trade in goods and services, on the other hand, declines by only 2 percent.
An exceptionally bright spot for services in 2023 is the global exports of digital services, which reached USD 4.25 trillion in 2023, up 9 percent from the previous year and accounting for 13.8 percent of world exports of goods and services. The value of these services, which are digitally delivered across borders via computer networks and cover everything from professional services to music and video streaming, including distance education, was over 50 percent higher in 2023 than pre-pandemic levels.
Regarding merchandise volumes, most of the decline between 2022 and 2023 was driven by Europe, which subtracted 1.7 percentage points from global import growth and reduced global export growth by 1.0 percentage points. However, all regions are expected to contribute positively to export and import growth in 2024. Asia, in particular, is expected to contribute about 1.3 percentage points to global export growth and 1.9 percentage points to global import growth in 2024.
However, regional conflicts and geopolitical tensions may limit the extent of the trade recovery by causing further price increases in food and energy. For example, while Suez Canal disruptions caused by conflicts in the Middle East have so far been relatively limited, delays and increases in freight costs have affected some sectors, such as automotive products, fertilizers, and retail.
Geopolitical tensions are also starting to affect trade patterns. Since 2018, bilateral trade between the US and China has grown 30 percent less than trade with the rest of the world. Moreover, trade between hypothetical blocs of geopolitically aligned countries has grown 4 percent slower than trade within blocs since the start of the war in Ukraine.
However, while the trading environment is challenging, one should not paint too darkly a picture of international trade. The volume of world trade in goods was flat through 2023, with a 1.2 percent decline in 2023 compared to 2022. It is up 6.3 percent compared to the pre-pandemic peak in the third quarter of 2019 and 19.1 percent compared to 2015. These figures highlight the resilience of international trade.
Trade growth in 2023 was fragile compared to real GDP growth at market exchange rates, which slowed from 3.1 percent in 2022 to just 2.7 percent in 2023. In this sense, growth is expected to remain stable over the next two years, at 2.6 percent in 2024 and 2.7 percent in 2025.
Undoubtedly, inflation plays a pivotal role in this scenario. The surge in prices has significantly reduced real household incomes and eroded firms' net incomes in 2023, thereby dampening the demand for manufactured goods, which are a significant part of international trade. Europe, in particular, has been hit hard by the escalating energy costs since the onset of the war in Ukraine, owing to its reliance on imported natural gas.
However, inflationary pressures are expected to ease this year, and real incomes will start rising again, especially in advanced economies. This will boost the consumption of manufactured goods. Demand for tradable goods is expected to rebound in 2024, as evidenced by new export orders, which point to improved trade conditions. In this context, easing inflationary pressures and eventual declines in interest rates should gradually boost consumption and increase import demand in 2024 and 2025.
