Global merchandise trade is expected to gradually recover this year following a contraction in 2023, primarily driven by the lingering effects of high energy prices and inflation, according to a new forecast by World Trade Organisation economists released on April 10.

The volume of world merchandise trade is projected to increase by 2.6 per cent in 2024 and 3.3 per cent in 2025, rebounding from a 1.2 per cent decline in 2023. However, risks remain significant due to regional conflicts, geopolitical tensions, and economic policy uncertainty.

In the latest “Global Trade Outlook and Statistics” report, WTO economists highlight that inflationary pressures are expected to ease this year, enabling real incomes to grow again—particularly in advanced economies—thus boosting consumption of manufactured goods.

Evidence of a recovery in demand for tradable goods in 2024 is already apparent, with indices of new export orders indicating improving trade conditions at the beginning of the year.

WTO Director-General Ngozi Okonjo-Iweala stated, “We are progressing towards global trade recovery, thanks to resilient supply chains and a robust multilateral trading framework—essential for improving livelihoods and welfare. It’s crucial to mitigate risks such as geopolitical strife and trade fragmentation to sustain economic growth and stability.”

High energy prices and inflation continued to dampen demand for manufactured goods, resulting in a 1.2 per cent decline in world merchandise trade volume in 2023. The decline was more pronounced in value terms, with merchandise exports decreasing by 5 per cent to US$24.01 trillion.

On the services side, trade developments were more positive, with commercial services exports rising by 9 per cent to US$7.54 trillion, partially offsetting the decline in goods trade.

Import volumes decreased across most regions, notably in Europe where they fell sharply. Exceptions were seen in large fuel-exporting economies, where imports were sustained by robust export revenues due to historically high energy prices. Throughout 2023, world trade remained well above pre-pandemic levels.

By the fourth quarter, global trade was nearly unchanged compared to the same period in 2022 (+0.1 per cent) and had only slightly increased compared to the same period in 2021 (+0.5 per cent).

The report also estimates that global GDP growth at market exchange rates will remain relatively stable over the next two years at 2.6 per cent in 2024 and 2.7 per cent in 2025, following a slowdown to 2.7 per cent in 2023 from 3.1 per cent in 2022.

The contrast between steady real GDP growth and the deceleration in real merchandise trade volume is attributed to inflationary pressures, which have negatively impacted consumption of trade-intensive goods, particularly in Europe and North America.

Downside risks

Looking ahead, the report cautions that geopolitical tensions and policy uncertainties could restrict the extent of the trade recovery. Food and energy prices may once again face price spikes linked to geopolitical events.

The report’s special analytical section on the Red Sea crisis highlights that while the economic impact of the Suez Canal disruptions stemming from the Middle East conflict has been relatively limited thus far, certain sectors such as automotive products, fertilizers, and retail have already experienced delays and increases in freight costs.

Furthermore, the report presents new data indicating that while geopolitical tensions have marginally affected trade patterns, they have not led to a sustained trend towards deglobalisation.

Bilateral trade between the United States and China, which reached a record high in 2022, grew 30 per cent less in 2023 compared to their trade with the rest of the world. Moreover, global trade in non-fuel intermediate goods, which serves as a useful indicator of global value chains, declined by 6 per cent in 2023.

In the realm of services, US imports of information, computer, and telecommunications (ICT) services from North American trading partners (mainly Canada) increased from 15.7 per cent of total ICT imports in 2018 to 23.0 per cent in 2023, while imports from Asian trading partners (mostly India) decreased from 45.1 per cent to 32.6 per cent during the same period.

The fragmentation of data flow policies along geopolitical lines could potentially cause a decline of 1.8 per cent in global trade of goods and services in real terms and a 1 per cent reduction in global GDP, according to estimates from a forthcoming study by the Organisation for Economic Co-operation and Development and the WTO.

WTO Chief Economist Ralph Ossa noted that some governments have become more skeptical about the benefits of trade and have taken steps aimed at reshoring production and shifting trade towards friendly nations.

The resilience of trade is also being tested by disruptions on two major shipping routes: the Panama Canal, affected by freshwater shortages, and the diversion of traffic away from the Red Sea, he added. Ossa also emphasized that under sustained disruptions, geopolitical tensions, and policy uncertainty, risks to the trade outlook are skewed towards the downside.

Regional Trade Outlook

If current projections hold, Africa’s exports are expected to grow faster than those of any other region in 2024, increasing by 5.3 per cent. However, this growth is from a low base as the continent’s exports remained depressed following the COVID-19 pandemic.

The CIS region is anticipated to experience growth just slightly below 5.3 per cent, also from a reduced base after the region’s exports plunged due to the war in Ukraine.

Moderate export growth is expected in North America (3.6 per cent), the Middle East (3.5 per cent), and Asia (3.4 per cent), while South America is forecasted to grow more slowly at 2.6 per cent. European exports, on the other hand, are expected to lag behind other regions with growth of just 1.7 per cent.

Strong import volume growth of 5.6 per cent in Asia and 4.4 per cent in Africa should help support global demand for traded goods this year. However, all other regions are expected to see below-average import growth, including South America (2.7 per cent), the Middle East (1.2 per cent), North America (1.0 per cent), Europe (0.1 per cent), and the CIS region (-3.8 per cent).

Merchandise exports of least-developed countries (LDCs) are forecasted to grow by 2.7 per cent in 2024, down from 4.1 per cent in 2023, before accelerating to 4.2 per cent in 2025. Meanwhile, imports by LDCs are expected to grow by 6.0 per cent this year and 6.8 per cent next year, following a 3.5 per cent contraction in 2023.

Trade in Services

World commercial services trade expanded by 9 per cent in 2023 despite a decline in freight transport, driven by recovering international travel and surging digitally delivered services.

In 2024, sporting events scheduled in Europe during the summer and the easing of visa requirements by various countries are expected to boost tourism and passenger transport.

Global exports of digitally delivered services surged to US$4.25 trillion in 2023, up 9.0 per cent year-on-year, accounting for 13.8 per cent of world exports of goods and services. These services, traded over borders via computer networks, encompass everything from professional and management services to music and video streaming, online gaming, and remote education.

In 2023, the value of digitally delivered services surpassed pre-pandemic levels by over 50 per cent. Exports grew by 11 per cent in Europe, 9 per cent in Asia, 13 per cent in Africa, and 11 per cent in South and Central America and the Caribbean, exceeding the global average.

These regions, accounting for only a small percentage of global exports in 2023, are poised to take advantage of the trade in digitally delivered services.