The World Trade Organisation (WTO) has downgraded its 2012 forecast for world trade expansion from the 3.7% forecast in April to 2.5%, owing to prevailing economic headwinds and has also scaled back its 2013 estimate to 4.5%, from 5.6%.

“On the export side, we anticipate a 1.5% increase in developed economies’ trade (down from 2%) and a 3.5% expansion for developing countries (down from 5.6%). On the import side, we foresee nearly stagnant growth of 0.4% in developed economies (down sharply from 1.9%) and a more robust 5.4% increase in developing countries (down from 6.2%),” the organisation said in a statement.

Risks to the forecast would remain mostly on the downside as long as financial uncertainty in Europe remains elevated, the WTO said, while warning that any “hard landing” for the Chinese economy would add to the stresses. However, there was also some upside potential if the European Central Bank’s recently announced bond-purchasing programme has an immediate salutary effect on European Union (EU) import demand.

Director-general Pascal Lamy welcomed recently announced measures to reinforce the euro and boost growth in the US. But he said more needed to support growth, and again called for a renewed commitment from countries to revitalise the multilateral trading system. “The last thing the world economy needs right now is the threat of rising protectionism,” he warned.

The volume of world trade as measured by the average of exports and imports only managed to grow 0.3% in the second quarter compared to the first, or 1.2% at a yearly rate.

The trade slowdown in the first half of 2012 was driven by an even stronger deceleration in imports of developed countries and by a corresponding weakness in the exports of developing economies.
Based on current information, the WTO expected trade growth to rebound to 4.5% in 2013. Exports of developed and developing economies should increase by 3.3% and 5.7% respectively, while imports of developed and developing countries should advance 3.4% and 6.1% respectively.

Although developed countries collectively recorded modest increases in both exports and imports in 2012, some grew faster than others.

Exports of the US and shipments from the EU to the rest of the world grew steadily over the past year, with year-on-year increases of around 7% and 5% respectively, in the second quarter.

Japanese exports had been mostly flat since mid-2010, but even they recorded an 8.5% year-on-year increase in the second quarter.

US and Japanese imports had also held up relatively well despite the crisis, with year-on-year growth of roughly 5% and 6% in the latest period.

However, import demand in the EU had weakened significantly, resulting in less trade between EU countries and fewer imports from the rest of the world (also down 3.5%). The weight of the EU in total world trade, combined with the larger-than-expected year-on-year drop in EU imports through the first half of 2012, explains much of the downward revision to the forecast.

The EU also represents nearly 60% of developed economies’ imports, which accounted for the stagnation in projected imports of developed economies in 2012.

Weak import demand in developed countries and softer domestic demand in China had contributed to sagging trade flows in the developing world, most noticeably in dynamic export-oriented economies in Asia.

Export growth dropped to 2.9% and import growth fell to 2.8% in the first quarter of 2012 before rebounding slightly in the second quarter, but available monthly data suggest that the third-quarter results may be weaker still.