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World trade in goods is set to slow sharply next year, possibly easing high inflation but raising the risk of a global recession, a new forecast shows. The World Trade Organization said surging energy costs and rising interest rates are weakening household demand across the globe, a dynamic that could cause exports and imports to increase by just 1% in 2023, down from a previous forecast of 3.4%. It also means there is an increased risk that the global economy will contract.
The WTO also lowered its forecast for global economic growth in 2023 to 2.3% from 3.3% and warned of an even sharper slowdown should central banks raise interest rates too sharply. Several long-term trends are weighing on international trade, including increased tariffs and other barriers, as well as a slowdown in globalization that threatens to intensify as a result of Russia’s invasion of Ukraine and other geopolitical tensions.
New export orders fell in September at the fastest pace since June 2020, when the pandemic had closed large parts of the global economy, according to a survey of purchasing managers at factories around the world released by S&P Global on Monday. A measure of supply-chain pressures compiled by the Federal Reserve Bank of New York has fallen each month from April to August, and freight costs have declined rapidly over recent months.
Signs of a slowdown in global trade are especially visible in Asia. Data from bellwether exporters such as South Korea show a pullback in overseas sales, as Western consumers, especially in Europe, feel the squeeze from high inflation and rising interest rates. South Korea’s exports grew by an annual 2.8% in September, the weakest performance since October 2020.
In China, the world’s second-largest economy, an export boom that propelled its economy through the pandemic is petering out. Export growth slowed sharply in August and a subindex of the country’s official purchasing managers index that tracks new export orders fell deeper into contraction territory in September. Chinese demand for imports is also weak, starving Asian economies of a key destination for finished goods, components and raw materials. Imports grew 0.3% in August compared with a year earlier.
© 2015 Mutual Fund Observer. All rights reserved.
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