WTO slashes 2022 global trade growth forecast on Russia-Ukraine war

Report from global trade watchdog said the Russia-Ukraine conflict, now in its seventh week, has damaged the world economy at a critical juncture as the pandemic continues to weigh on recovery

The World Trade Organization (WTO) on Tuesday lowered its 2022 global trade forecast to 3 per cent, from 4.7 per cent, due to the ongoing conflict between Russia and Ukraine and a potentially more transmissible Omicron subtype fettering China.

The forecast for 2023 is 3.4 per cent.

Prospects for the global economy have darkened since the outbreak of war in Ukraine on February 24. These prompted economists at the global trade watchdog to reassess their projections for world trade over the next two years, it said in a statement. However, these figures may be revised due to uncertainty about the course the conflict could possibly take.

Geopolitical tensions have resulted in commodity prices rising sharply. Since Russia and Ukraine are key providers of food, energy, and fertilisers, their supply has become arduous. Shipments from Black Sea ports are on freeze, affecting poor countries. In addition, lockdowns in China may trigger renewed shortage of manufacturing inputs and higher inflation, causing fresh disruption in trade.

“The war in Ukraine has created immense human suffering, but it has also damaged the global economy at a critical juncture. Its impact will be felt around the world, particularly in low-income countries, where food accounts for a large fraction of household spending,” said Ngozi Okonjo-Iweala, director-general, WTO.

“Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without. This must not be allowed to happen. This is not the time to turn inward. In a crisis, more trade is needed to ensure stable, equitable access to necessities,” she added.

According to Okonjo-Iweala, governments and multilateral organisations must work together to facilitate trade at a time of inflationary constraints on essential supplies and growing pressure on supply chains.

Current estimates — based on the WTO Global Trade Model — capture the direct impact of the offensive in Ukraine, including the destruction of infrastructure and increased trade costs, as well as the impact of sanctions on Russia, together with the blocking of Russian banks from the Society for Worldwide Interbank Financial Telecommunication settlement system. They also capture the reduced aggregate demand in the rest of the world due to low business confidence and growing uncertainty.

Consequently, world gross domestic product at market exchange rates is expected to grow 2.8 per cent in 2022, down 1.3 percentage points from the previous forecast of 4.1 per cent.

“Growth should pick up to 3.2 per cent in 2023 — close to the average rate of 3 per cent between 2010 and 2019. Output in the Commonwealth of Independent States region — which excludes Ukraine — is expected to see a sharp 7.9 per cent drop, leading to a 12 per cent contraction in the region’s import,” observed WTO.