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Global trade growth may fall to 4.5pc : WTO PDF Print E-mail
Sunday, 20 April 2008

World trade growth could ease to 4.5 percent in 2008 as a sharp economic slowdown in developed countries will only be partly offset by strong gains in emerging economies, the WTO said yesterday, reports AFP.

But if turmoil on the financial markets continues and developed economies see a more pronounced slowdown, trade growth could yet be cut further to “significantly less than the 4.5 percent predicted,” the World Trade Organisation warned in a report on prospects for growth in 2008.

Global trade grew by 8.5 percent in 2006 but slipped to 5.5 percent in 2007. This year, the rate of growth will largely depend on how soon developed countries can shake off the financial turmoil currently dogging the markets. If market turbulence is contained soon, world output could still grow at 2.6 percent and world trade at above 4.0 percent, said the WTO.

This is derived from a projection that developed markets would grow at 1.1 percent as developing economies expand at above 5.0 percent. “But I have to say we had some difficulty arriving at this number (the trade growth figure) because there is so much uncertainty in the world economy right now... We will probably have to revisit this estimate in the 3rd or 4th quarter of the year,” said WTO chief economist Patrick Low.

He also said the 4.5 percent forecast of trade growth is “probably” the best case scenario for the year. “I think there is a lot of downside risks. You really have to be quite optimistic about what’s going on in the financial markets, and what commodity price rises are doing to believe that this isn’t going to feed through into the real economy in ways it has not done so yet,” he said.

Senior economist Michael Finger added that the trade estimate was based on GDP forecasts that took the average oil price for the year at about 95 dollars. However, he pointed out that oil prices moved above 115 dollars on Wednesday, a trend that represents an additional downside risk. At the same time, he said a sharper economic slowdown or even a recession could in turn have an impact on the dampening of oil prices.

“These are uncertain and troubling times for the global economy,” said WTO Director General Pascal Lamy. “To date, the financial market turmoil and significant slowdown of developed economies has not led to a disruption of trade. But protectionist pressures are building as policymakers seek answers to the problems that confront us,” he added.

Financial markets have descended into turmoil on the back of increasing defaults of subprime mortgages in the United States. The impact spilled over to the international banking system where liquidity was cut off as inter-bank lending fell to a fraction of the level before the crisis erupted last August.

The WTO noted that the sharp cut in the US interest rates had bought short-term relief for financial markets that in turn “caused havoc on the exchange and commodity markets in the first quarter of 2008 as holders of dollar assets tried to limit their exposure to a likely further decline in the currency.”

“The adverse consequences of turmoil on financial markets will not only affect US demand growth but also lead to further downward revisions in economic growth for Japan and Western Europe,” it noted. Domestic demand in the US stagnated in the last three months of last year and may shrink in the first half of 2008, noted the WTO.

Imports of goods and services in the United States, which had already contracted between the third and fourth quarter last year, are likely to decrease further quarter to quarter in the first half of this year.

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