The World Trade Organization (WTO) cut its 2019 forecast for trade growth in half due to slower global economic growth and ongoing political issues of U.S.-China trade relations and the U.K.’s pending departure from the European Union.
While 2020 is expected to be stronger, the WTO warned that its member nations will have to create a more stable business climate for trade to grow again.
The Geneva-based group charged with enforcing the rules set out in trade agreements said trade in real goods is expected to rise 1.2% this year, compared to an earlier forecast of 2.6% made in April.
The first half of 2019 saw export and import volumes rise 0.6% from a year earlier, a “substantial slowdown compared to recent years,” the WTO said.
North America remains the standout among regional economies for its trade growth. It had the fastest export growth in the first half of 2019 at 1.4%, while import growth was 1.8%.
Europe saw smaller growth in exports and imports, rising 0.7% and 0.2% respectively in the first half. Asia’s exports grew 0.7% and imports suffered a 0.4% decline.
As the fourth quarter could surprise in either direction, 2019 trade growth could fall within a range of outcomes from 0.5% to 1.6% growth, the WTO said, if trade tensions continue to build, or if they start to recede.
The new trade forecast is based on a downgraded forecast for global gross domestic production (GDP) of 2.3%, down from an earlier forecast 2.6% growth in 2019.
The weaker GDP forecast reflects the regional and cyclical slowdowns across the world. The European Union saw its economy slow down in the second quarter, led largely by weakening industrial production in Germany. China’s 6.2% GDP growth in the second quarter was its slowest in 27 years. The U.S. economy is expected to see 2.1% GDP growth in the third quarter, according to the Atlanta Federal Reserve Bank.
WTO Director-General Roberto Azevedo said the weaker economic and trade outlook “is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards.” It is also creating a negative feedback loop as “job creation may also be hampered as firms employ fewer workers to produce goods and services for export,” he added.
“Resolving trade disagreements would allow WTO members to avoid such costs,” Azevedo said.
The 2020 trade outlook was also trimmed from 3% to 2.7%. The WTO said that the actual outcome could fall anywhere from 1.7% to 3.7%, depending on how the global economy performs next year. The WTO said that the “risks to the forecast are heavily weighted to the downside” due to the potential for further tariffs, changes in monetary and fiscal policies, and the inability of the U.K. to extricate itself from the European Union.