Exports from developing countries may fall only 2-3 per cent

The economists at the World Trade Organisation (WTO) expect the world trade to contract by 9% this year. Their annual assessment predicts the contraction to be severe in developed countries. The developing countries might see a fall in exports by only 2-3 per cent, says their report.

Such forecasts have gone wrong earlier. Last year, they projected 4.5 per cent growth in world trade but actually the world trade grew only by 2%. Many will hope the world economy will revive quickly, thanks to concerted attempts of governments of major economies to revive their economies.

The estimates of the global growth in trade are supported by the results of the WTO Secretariat’s time series forecasting model but are sensitive to the size of the initial drop and to the rate of recovery.

If the drop in world trade is deeper than expected or if recovery happens more quickly, then the growth forecast will need updating.

While making the projections, the WTO economists assume a normal pattern for a recession, where trade fall remains weak for a time and then resumes its upward trajectory and begins to return to its previous trend.

Besides the persistence of instability in the global financial markets and consequent recession, the WTO blames widespread fall in demand, increasing presence of global supply chains in total trade, shortage of trade finance and growing protectionism as principal elements that could contribute to downside risks to the projections.

The G-20 meet in London seems to have addressed at least some of the concerns. The official communique reaffir-med the commitment made in Washington to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions or implementing WTO inconsistent measures to stimulate exports. “We will minimise any negative impact on trade and investment of our domestic policy actions, notify promptly the WTO of any such measures and take steps to promote and facilitate trade and investment,” say the G-20 leaders.

The best part of trade related decisions at the G-20 meet is to ensure availability of at least $250 billion over the next two years to support trade finance through export credit and investment agencies.

Pascal Lamy, the director general of WTO, welcomed the G20 Summit’s pledge to support trade finance. “Trade is contracting sharply, exacerbated by the lack of trade finance. The G20 commit-ment to provide $250 billion for trade finance shows the capacity of the international community to address urgent global needs by helping to restore trade as an engine of growth,” he said.

For Indian exporters, the immediate prospects look dim. February exports growth rate fell by 21.7 per cent, bringing down the exports growth rate for April-February period to 7.3 per cent in US Dollar terms and 20.3 per cent in rupee terms over the same period in the previous year. The Government has done its bit, short of giving direct export subsidies. The buyers have to come back. Increase in trade finance and the cumulative impact of stimulus packages in developed countries might have positive impact and bring the buyers back in the latter half of the year.

The silver lining is that the world commercial services exports rose 11 per cent in 2008, to $3.7 trillion, with transport and travel leading the pack. Hopefully, the G-20 will restore confidence, growth, and jobs quickly.