Rising trade tensions have prompted the World Trade Organization (WTO) to dim its prospect for trade growth in the second quarter of the 2019 calendar year.
“World trade growth is likely to remain weak into the second quarter of 2019,” the WTO said on Monday, pointing towards falling levels of growth in international air freight, automobile production, sales and trade in agriculture raw materials. “The outlook for trade could worsen if heightened trade tensions are not resolved or if macroeconomic policy fails to adjust to changing circumstances,” it further said.
While the WTO did not mention the US and China in its latest assessment, the escalating trade war between the two largest economies had been blamed by it earlier as a source of destabilisation of growth. The Geneva-based body brings out its quarterly forecast of global trade growth through the World Trade Outlook Indicator (WTOI) index. It shows a sustained slowdown in container port throughput, stemming from slow growth in crucial sectors.
The WTO has maintained that the index is not intended as a short-term forecast, suggesting it provides an indication of trade growth in the near future. The index had correctly forecast continued reduction in trade growth since 2018. Readings greater than 100 suggests growth above medium-term trends, while those below the number indicate the opposite. However, actual trade volumes have closely followed its predictions.
This was driven by declines in all, but two component indices, electronic components and most importantly, export orders, which managed to rise slightly.
Indices for export orders (96.6) and electronic components (96.7) appear to have bottomed out, even as both remained firmly below-trend, the WTO said. Elsewhere, the index for container port throughput (101.0) also declined but remained above 100, suggesting growth in line with recent trends.
In April, economists at the global trade body estimated that merchandise trade volume growth would fall to 2.6 per cent in 2019, down from 3.0 per cent in 2018, before rebounding to 3 per cent in 2020. However, they had cautioned that significant downside risks remained to the 2019 forecast. “Any rebound in 2020 would depend on reduced trade tensions and/or improved macroeconomic performance,” the WTO had said.
India's exports had a disappointing start in the first month of the new financial year as growth crashed to a four-month low of only 0.64 per cent in April, with sectors such as engineering goods, gems and jewellery suffered sharp contractions. Of the 30 major product groups, 14 recorded a growth in April, a steep climb down from 20 in March.
Tensions between the two largest economies are not expected to subside soon as Beijing has taken a sterner stance now. The last bilateral meet between both parties ended inconclusively on May 10 - the same day US resident Donald Trump raised the tariff rate on $200 billion worth of Chinese products from 10 per cent.
The Xi Jinping administration has responded by putting a similar 25 per cent import duty on US imports worth $60 billion.