World Trade Organization (WTO) economists have issued a strong upward revision to their forecast for 2017 trade expansion following a sharp acceleration in global trade growth in the first half of the year.
The estimate for growth in world merchandise trade volume in 2017 was raised to 3.6 percent. The previous estimate for 2017 was 2.4 percent, although this was set within a range of 1.8-3.6 percent, reflecting the high level of economic and policy uncertainty. The new estimate puts the focus on the top end of that range.
Growth of 3.6 percent would represent a substantial improvement on the lackluster 1.3 percent increase in 2016. Stronger growth in 2017 was attributed to a resurgence of Asian trade flows as intra-regional shipments picked up and as import demand in North America recovered after stalling in 2016.
“The improved outlook for trade is welcome news, but substantial risks that threaten the world economy remain in place and could easily undermine any trade recovery,” Director-General Roberto Azevêdo said. “These risks include the possibility that protectionist rhetoric translates into trade restrictive actions, a worrying rise in global geopolitical tensions and a rising economic toll from natural disasters.
“Though difficult to quantify, these risks are very real. As a result, increased optimism about trade should be tempered with a healthy dose of caution. On the other hand, the fact that trade growth is now more synchronized across regions than it has been for many years could make the current expansion self-reinforcing. Such a positive outcome would be more likely if countries continue to resist the temptations of protectionism and work together with their partners in the multilateral system to ensure that gains from trade are both large and widely shared.”
GDP growth accelerated in most major economies in the second quarter, most notably in China where quarter-on-quarter growth rose from 1.3 percent in Q1 (equivalent to an annual rate of around 5.3 percent) to 1.7 percent in Q2 (around 7.0 percent annualized). Growth also strengthened in the U.S. (from 1.2 percent annualized in Q1 to 3.0 percent in Q3) and the Euro area (from 2.2 percent in Q1 to 2.6 percent in Q2).
Stronger growth particularly in China and the U.S. boosted demand for imports, which spurred intra-Asia-trade as demand was transmitted through regional supply chains. Chinese demand in the first half of 2017 was driven by solid growth in industry (up 6.4 percent in real terms for the year to date) and even stronger growth in services (up 7.7 percent over the same period). Financial conditions in Asia also improved compared to the volatile first quarter of 2016, contributing to business and consumer confidence.
The partial recovery of oil prices in 2017 also appears to have provided some support for investment in the U.S., growth of which slowed abruptly in 2016 – particularly in the energy sector – but has picked up in the first half of this year.
The rapid pace of trade growth in 2017 is unlikely to be sustained next year, says the WTO. First, trade growth in 2018 will not be measured against a weak base year, as is the case this year. Second, monetary policy is expected to tighten in developed countries as the Federal Reserve gradually raises interest rates in the U.S. and the European Central Bank looks to phase out quantitative easing in the Euro area. Third, fiscal expansion and easy credit in China are likely to be reined in to prevent the economy from overheating. All of these factors should contribute to a moderation of trade growth in 2018 to around 3.2 percent.