12:01 PM, Apr 12, 2018 — The World Trade Organization on Thursday said trade growth remains strong, but escalating tensions between some countries may have an effect on business confidence and investment decisions.
Trade volume in 2018 is pegged by the organization at 4.4% as measured by the average of exports and imports, close to the 4.7% increase in 2017, the WTO said in a report released Thursday. Growth likely will moderate at 4% in 2019, down from the average rate of 4.8% since 1990 but well above the post-crisis average of 3%. Escalating tensions, however, may compromise its outlook, the organization said.
Growth in 2017 was the strongest since 2011 and was driven mainly by cyclical factors including increased investment and consumption expenditures, the organization said. Merchandise exports that grew 11% and commercial services that gained 7.4% were strong, though merchandise volume started at a low base.
“The strong trade growth that we are seeing today will be vital for continued economic growth and recovery and to support job creation,” the WTO said in the report. “However this important progress could be quickly undermined if governments resort to restrictive trade policies, especially in a tit-for-tat process that could lead to an unmanageable escalation. A cycle of retaliation is the last thing the world economy needs.”
WTO Director-General Roberto Azevedo urged governments to show restraint and settle differences through “serious engagement” and dialogue.
The US and China have been involved recently in a tit-for-tat trade spat. The US started by imposing tariffs on steel and aluminum, then said it would impose tariffs on $50 billion worth of Chinese goods. China, in response, threatened levies on an equal value of US wares.
Risks to trade, which appeared to be more balanced than at anytime during the financial crisis, have increased in light of recent trade developments, the organization said. Increases in restrictive trade policies and fears of retaliation will weigh heavily on global trade and output.
“The outlook that we are publishing today is quite positive,” Azevedo said. “It reflects the stronger economic growth that we have been seeing in both developed and developing countries, and which is forecast to continue. But let me be clear — these forecasts do not factor-in the possibility of a dramatic escalation in trade restrictions.”
Faster monetary tightening by central banks also may trigger fluctuations in exchange rates and capital flows that could could disrupt trade flows. Worsening geopolitical tensions globally also will likely reduce trade, though the magnitude of their impact is unpredictable, the WTO said.
It’s not all bad news, though, as there is upside potential should structural reforms and expansionary fiscal policy boost economic growth and trade in the short term.
“The fact that all regions are experiencing upswings in trade and output at the same time could also make recovery more self-sustaining and increase the likelihood of positive outcomes,” the WTO report said.
Because of the increasing uncertainty outlined by the organization, trade growth in 2018 likely will fall between 3.1% and 5.5%, the report said. The rate, however, will depend on current forecasts for gross domestic product. Further escalation of restrictive trade policies or other shocks that negatively impact global economic activity may result in trade growth outside of the range, the WTO said.