‘Trade momentum may soften further in Q3 on rising tensions’

Trade expansion will likely slow further in the third quarter of 2018 according to the WTO’s latest World Trade Outlook Indicator (WTOI), as rising trade tensions continue to pose risks to the trade forecast.

The most recent WTOI reading of 100.3 is below the previous value of 101.8 and just above the baseline value of 100 for the index, signalling an easing of trade growth in the coming months in line with medium-term trends.

According to the WTO, this loss of momentum reflects weakness in component indices including export orders and automobile production and sales, which may be responding to the ratcheting up of trade tensions.

The United Nations Conference on Trade and Development (UNCTAD) had warned that current trade actions augur a situation in which everyone will lose.

UNCTAD noted that developing countries that played no role in starting the conflict would be even less able to afford it.

“On average, tariffs applied on developing countries’ exports could rise from 3% to 37%.

But whereas average tariffs affecting countries like Nigeria and Zambia probably would not go above 10%, those against Mexico could reach as high as 60%.

Likewise, countries like Costa Rica, Ethiopia, Sri Lanka, Bangladesh, and Turkey could face average tariffs of 40-50%”, says UNCTAD.

Secretary-General of UNCTAD, Dr. Mukhisa Kituyi, explained that in a trade war, companies across a wide range of sectors will lose profits, and workers will lose jobs, adding that governments will lose revenue, and consumers will have fewer product choices available; and, no matter where they are, firms, governments, and households will incur higher costs.

UNCTAD research shows that average tariffs could rise from negligible levels to as high as 30% for US exporters and 35% and 40% for EU and Chinese exporters, respectively.

Indeed, the latest WTOI results remain broadly in line with the its most recent trade forecast issued on 12 April 2018, which predicted a slowing of merchandise trade volume growth from 4.7% in 2017 to 4.4% in 2018.

The moderation in the overall WTOI index was driven by export orders (97.2), which have declined steadily over the course of the year, and automobile production and sales (98.1), which have risen slightly recently but remain below trend.

The indices for air freight (100.9) and container port throughput (102.2) remain above trend but growth momentum in both appears to be past its peak.

Electronic components stayed above trend (102.2) while agricultural raw materials (100.1) moved from below trend to on trend.

Designed to provide “real time” information on the trajectory of world trade relative to recent trends, the WTOI is not intended as a short-term forecast, although it does provide an indication of trade growth in the near future.

“Its main contribution is to identify turning points and gauge momentum in global trade growth.

As such, it complements trade statistics and forecasts from the WTO and other organizations. Readings of 100 indicate growth in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate the reverse.

The direction of change reflects momentum compared with the previous month”, the WTO explained.