Along with the shock announcement that world trade will expand by only 1.7% in 2017, the slowest pace since the financial crisis of 2009, the World Trade Organisation (WTO) highlighted a weakening in the relationship between trade and gross domestic product (GDP) growth.
This is significant, as trade has typically grown one-and-a-half times faster than GDP, with world merchandise trade volumes having grown about twice as fast as world real GDP at market exchange rates in the 1990s. In addition, strong trade growth has, historically, been a sign of strong economic growth, as trade has provided a way for developing and emerging economies to grow quickly, and strong import growth has been associated with faster growth in developed countries.
However, the ratio has been falling in recent years towards 1:1 and, if the revised projection holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1.
A recent Peterson Institute for International Economics analysis shows that, at seven years, the world has entered the longest post-war period of relative trade stagnation. “Since 2008, the ratio of world trade to GDP has remained just under 60%. After a quick recovery in 2010 from the sharp fall in 2009, the annual growth of global exports has been stuck at less than 3%, about the same growth rate as world GDP,” the analysis states.
The WTO says it is working hard to understand the decline in the ratio of trade growth to GDP growth, which some have attributed to changes in the import content of demand, an absence of trade liberalisation, creeping protectionism, a contraction of global value chains and possibly the increasing role of the digital economy and e-commerce. “Whatever the cause, the recent run of weak trade and economic growth suggests the need for a better understanding of changing global economic relationships.”
For policymakers, the shift cannot be ignored, particularly in countries were export-led growth strategies are being pursued or considered. This theme has already been picked up by the United Nations Conference on Trade and Development (Unctad), which warns in it latest Trade and Development Report that the slowdown of trade is stalling growth in many developing countries.
WTO director-general Roberto Azevêdo describes the slowdown of trade growth as “dramatic” and “serious” and says it should serve as a “wake-up call”.
“It is particularly concerning in the context of growing anti- globalisation sentiment. We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development, which are so closely linked to an open trading system,” Azevêdo argues.