WTO Forecasts Sluggish Trade Growth Amid Suez Canal Tensions

Summary

  • The World Trade Organization (WTO) predicted a 0.8% growth in merchandise trade for 2023 and 3.3% for 2024 in October.
  • In light of geopolitical tensions, such as Suez Canal disruptions and Red Sea ship attacks, WTO revised its estimates, stating that growth might be less than 0.8%.
  • International trade overcame obstacles and demonstrated resilience, even in the face of unfavorable conditions such as the COVID-19 pandemic.

Impact of Geopolitical Issues on Trade

October estimates by the WTO predicted a positive outlook for World merchandise trade growth with 0.8% forecasted for 2023 and 3.3% for 2024. However, the organization is currently evaluating these numbers as growth this year is under threat from geopolitical tensions. The Suez Canal disruptions and attacks on vessels in the Red Sea by Yemen’s Iran-backed Houthis are major contributors to this uncertainty.

Trade Performance and Expectations

Merchandise trade experienced a drop of 1.4% year-on-year in the first three quarters of 2023, though the last quarter showed promise of strength. The exact rate of growth remains unclear for now. However, it could potentially be less than the expected 0.8%. The underperforming European market and slower than predicted Chinese post-COVID recovery are among the contributory factors to this situation.

Resilience of International Trade

Excluding the COVID-19 pandemic year of 2020, global merchandise trade has consistently expanded over the past decade. For 2024, despite global organizations downsizing their GDP growth forecasts and its potential impact on WTO’s trade predictions, goods trade could still outperform the 2023 rate. International trade has proven extremely resilient despite numerous challenges, as acknowledged by experts.

Expansion of Services Trade

Evidencing this resilience is the continued growth in services trades, which had a sharp incline by 9% year-on-year in the first half of 2023, especially in digitally delivered services. However, one potential adverse effect of Suez Canal’s disruption might be an upward shift in consumer prices due to increased shipping costs.

If the disruptions persist, inflation’s effect will be observable in Europe. But it is predicted to inflict decimal points change in percentage terms rather than a significant shock, as per experts’ analysis.

In forex trading, this situation could influence related assets through unpredictable market fluctuations caused by varying trade trends. The potential rise in inflation could also impact the valuation of currencies.

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