WTO downgrades expected growth in merchandise trade to 3% in 2022 – down from its previous forecast of 4.7% – due to the war in Ukraine and lockdowns in China, with the slowdown expected to lead to softer freight pricing, Ti highlights

Save

Share6

By Will Waters

The prospects for world trade volume growth this year and next year are worsening, with the latest projections from the World Trade Organisation (WTO) including a marked reduction in the rate of growth in merchandise trade. The organisation is now expecting volume growth of 3% in 2022 – down from its previous forecast of 4.7% – followed by growth of around 3.4% in 2023.

The organisation attributes this expected weakening in trade growth principally to the war in Ukraine, because “despite their small shares in world trade and output, Russia and Ukraine are key suppliers of essential goods including food, energy, and fertilisers, supplies of which are now threatened by the war. Grain shipments through Black Sea ports have already been halted, with potentially dire consequences for food security in poor countries.”

But the WTO said its estimates “are less certain than usual due to the fluid nature of the conflict”.

IMF growth downgrade

The International Monetary Fund (IMF) also published revised economic growth figures on 19 April, also downgrading world trade growth. It said the economic damage from the war in Ukraine “will contribute to a significant slowdown in global growth in 2022 and add to inflation”, predicting global growth to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.

Beyond 2023, the IMF said global growth “is forecast to decline to about 3.3% over the medium term”, noting that “war-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7% in advanced economies and 8.7% in emerging market and developing economies – 1.8 and 2.8 percentage points higher than projected last January”.

Lockdowns in China also a factor

However, the WTO said the war in the Ukraine “is not the only factor weighing on world trade”, with the “lockdowns in China to prevent the spread of COVID-19 again disrupting seaborne trade at a time when supply chain pressures appeared to be easing. This could lead to renewed shortages of manufacturing inputs and higher inflation.”

Transport Intelligence (Ti) analyst Thomas Cullen noted that the WTO analysis “pays less attention to is the condition of the US economy”, where he highlighted that “inflation seems to be having a significant effect on consumer spending, with the Commerce Department reporting a significant slow-down in consumer spending in February as compared to January.

“In part, this might be structural, with shoppers moving towards service-related purchases and away from consumer durables, which were favoured during the past couple of years. If this trend is sustained, it will have a significant impact on the logistics infrastructure in the US and elsewhere,” Cullen continued.

“The West Coast ports have been overwhelmed by the flow of items such as garden furniture from South East Asia. If American consumers reduce their demand for these items, congestion is likely to ease.”

Cullen said freight rates in container shipping and air freight “will be heavily influenced by all these factors”, adding: “The supply situation in air freight is changing rapidly as belly freight surges onto the market. The position in sea freight is less dramatic as the supply of new ships will not hit a high for another twelve months.

“However, any lessening in demand will bring forward a fall in prices. Even with the effects of the Chinese situation and the war in Ukraine, the key number to watch will be demand in the US.”