The World Trade Organisation (WTO) anticipates global merchandise trade will slow next year as "multiple shocks" ranging from Russia's war in Ukraine, high energy costs in Europe, and US monetary policy tightening. All of which will raise manufacturing costs and squeeze households.
The Geneva-based institution said it expects trade growth to fall sharply in 2023 to 1%, compared with its previous forecast of 3.4%. The WTO also raised its projection for growth in merchandise trade this year to 3.5%, up from its previous projection of 3%.
The WTO's forecasts — which are in line with International Monetary Fund and Organisation for Economic Co-operation and Development projections — mark a major deceleration from 2021's 9.7% growth in global trade. That was fuelled by consumer purchases of household items while travel and other service industries were limited during the depths of the Covid-19 pandemic.
In addition to the economic risks facing the US and Europe, the WTO said poor nations stand to suffer more. Other potential drags include central banks raising interest rates too high or acting too late on inflation.
Policymakers are confronted with unenviable choices as they try to find an optimal balance on tackling inflation, maintaining full employment, and transitioning to clean energy.
A slowdown in trade poses challenges for logistics industries such as container shipping, where the biggest players posted record profits in recent quarters because of sky-high ocean freight rates. Some of them are already adjusting their businesses to account for lower volumes.
The world's largest container carrier, Geneva-based Mediterranean Shipping Co, announced the suspension of a transpacific service and cited significantly reduced demand for shipments into the US West Coast.
A slower global GDP growth, high inflation and an ever increasing interest rate regime is a toxic mix for lower growth of merchandise trade. Malaysia’s trade to GDP ratio was 130.7% in 2021. We are an open economy dependent on Singapore, China and the U.S. We have been reporting consistent trade surpluses since 1998. This is mainly due to rise in exports of electrical and electronics products.
To diversify export markets and export products, the Government has implemented various initiatives. In the light of global developments, we need to review and re-order priorities in our tax and incentive regime for DDIs and FDIs, if we want to cushion any shocks to the economy.
Reference:
WTO slashes forecast for merchandise trade growth in 2023, Bryce Baschuk (Bloomberg), TheEdge CEO Morning Brief, 6 October 2022
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