A sudden dip in export orders globally, brought about by an escalating trade war between the two largest economies - the US and China, has led to the World Trade Organization (WTO) dimming its prospects for trade growth in the third quarter of 2018 calendar year.
The Geneva-based body brings out its quarterly forecast of global trade growth through the World Trade Outlook Indicator (WTOI) index which on Thursday showed a sudden slowdown in global export orders, stemming from slow growth in crucial sectors.
“The moderation in the overall WTOI index was driven by export orders (97.2), which have declined steadily over the course of the year, and automobile production and sales (98.1), which have risen slightly recently, but remain below trend,” the WTO said.
Trade growth in agricultural raw materials and electrical components are also expected to be lower than the medium term trend.
The WTO has maintained that WTOI is not intended as a short-term forecast, suggesting it provides an indication of trade growth in the near future. 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. The index had forecast solid growth in trade volumes in the first quarter of this year which had continued to reduce ever since.
“The latest value of 100.3 is below the previous value of 101.8 and just above the baseline value of 100 for the index, signalling an easing of trade growth in the coming months in line with medium-term trends,” the WTO said.
Trade war intensifies
In the latest episode of a trade war that continues to spiral out of control, Beijing on Wednesday signalled its readiness to impose retaliatory tariffs on $16 billion worth of US goods, ahead of China’s top leaders gathering for their annual summit. This came close on the heels of the Donald Trump Administration in the US publishing a list of Chinese products that will face 25 per cent duties starting on August 23, raising the value of tariffs to $50 billion, from the current $34 billion.
Amid the trade war, China has reported a current account deficit of $28.3 billion in the first half of 2018 — a first in 20 years for the world’s second-largest economy. Growth in China’s factory sector hit an eight-month low as export orders came under stress. Chinese firms have cut output, fearing industrial risks as a result of slower orders and high corporate debt. This is expected to have ripple effects across the world, the WTO has warned.
India has also become embroiled in the trade war, announcing the imposition of higher duties on 29 key imports from the US, that are set to go live from September 18. Spread across sectors from which imports stood at $1.5 billion in 2017-18, New Delhi had claimed the amount was equal to the estimated loss faced by India after the Trump Administration hiked import duties on steel and aluminium in May.