World trade is expected to grow by a modest 4.7% in 2014 and at a slightly faster rate of 5.3% in 2015 WTO economists said today (14 April 2014).

Although the 2014 forecast of 4.7% is more than double the 2.1% increase of last year, it remains below the 20-year average of 5.3%. For the past two years, growth has averaged only 2.2%.

The sluggish pace of trade growth in 2013 was due to a combination of flat import demand in developed economies (0.2%) and moderate import growth in developing economies (4.4%). On the export side, both developed and developing economies only managed to record small, positive increases (1.5% for developed economies, 3.3% for developing economies).

“For the last two years trade growth has been sluggish. Looking ahead, if GDP forecasts hold true, we expect a broad-based but modest upturn in 2014, and further consolidation of this growth in 2015”, WTO Director-General Roberto Azevêdo said. “It’s clear that trade is going to improve as the world economy improves. But I know that just waiting for an automatic increase in trade will not be enough for WTO Members.”

“We can actively support trade growth by updating the rules and reaching new trade agreements. The deal in Bali last December illustrates this.”

“Concluding the Doha round would provide a strong foundation for trade in the future, and a powerful stimulus in today’s slow growth environment. We are currently discussing new ideas and new approaches which would help us to get the job done – and to do it quickly.”

Chart1: Growth in the volume of world merchandise trade and GDP, 2005-15a
Annual % change

a Figures for 2013 and 2014 are projections.
Source: WTO Secretariat.

Several factors contributed to the weakness of trade and output in 2013, including the lingering impact of the EU recession, high unemployment in euro area economies (Germany being a notable exception), and uncertainty about the timing of the Federal Reserve’s winding down of its monetary stimulus in the United States. The latter contributed to financial volatility in developing economies in the second half of 2013, particularly in certain “emerging” economies with large current account imbalances.

The preliminary estimate of 2.1% for world trade growth in 2013 refers to the average of merchandise exports and imports in volume terms, i.e. adjusted to account for differences in inflation and exchange rates across countries. This figure is slightly lower than the WTO’s most recent forecast of 2.5% for 2013, issued last September. The main reason for the divergence was a stronger than expected decline in developing economies’ trade flows in the second half of last year. For the second consecutive year, world trade has grown at roughly the same rate as world GDP (gross domestic product, a measure of countries’ economic output) at market exchange rates, rather than twice as fast, as is normally the case (Chart 1).

Recent business surveys and industrial production data point to a firming up of the recovery in the United States and Europe in early 2014. The gradual improvement of US employment data has allowed the Federal Reserve to proceed with its planned “tapering”, of their third round of quantitative easing (“QE3”) The outlook for the European Union has also improved, although growth there will remain uneven as long as peripheral EU economies continue to underperform core ones. Output growth in Japan should be slightly lower this year as planned fiscal consolidation is implemented. Finally, despite having hit a soft patch recently, developing economies (including China) should continue to outpace developed economies in terms of GDP and trade growth in the coming year, but some could encounter setbacks, particularly those most exposed to the recalibration of monetary policy in developed countries.

In 2013, the dollar value of world merchandise exports rose 2.1% to $18.8 trillion. This growth rate was slightly less than the WTO’s export volume growth estimate for the year (+2.4%), which implies that export prices declined slightly from one year to the next. Meanwhile, the value of world commercial services exports rose 5.5% to $4.6 trillion.

The trade forecast for 2014 is premised on an assumption of 3.0% growth in world GDP growth at market exchange rates, while the forecast for 2015 assumes output growth of 3.1%. Note that the GDP figures are consensus estimates and are not WTO projections. Risks to the trade forecast are still mostly on the downside, but there is some upside potential, particularly since trade in developed economies is starting from a low base. However, volatility is likely to be a defining feature of 2014 as monetary policy in developed economies becomes less accommodative.

Some developed economy risks factors have receded considerably since last year’s press release, including the sovereign debt crisis in Europe and fiscal brinksmanship between the executive and legislative branches of government in the United States. Developing economies are now the focus of several gathering risks, including large current account deficits (e.g. India, Turkey), currency crises (Argentina), overinvestment in productive capacity, and rebalancing economies to rely more on domestic consumption and less on external demand.

Geopolitical risks have introduced an additional element of uncertainty to the forecast. Civil conflicts and territorial disputes in the Middle East, Asia and Eastern Europe could provoke higher energy prices and disrupt trade flows if they escalate. However, since the timing and impact of these kinds of risks are inherently unpredictable, they are not considered directly in our forecasts.

Click here for a pdf version of the full WTO press release.