Merchandise trade is forecast to grow 2.6% worldwide this year and 3.3% in 2025 as inflation falls, countering the decline seen in 2023, the World Trade Organization (WTO) says.

Last year’s decrease of 1.2% was “larger than expected” due to weaker trade growth in Europe, but is “relatively small” overall, the WTO says in its latest Global Trade Outlook.

Last year’s falloff marks a “significant downgrade” from the WTO’s previous forecast, released in October, which predicted tepid growth of 0.8% for 2023.

It also “obscures strong regional variation”, with import demand falling in Europe and North America, staying flat in Asia and increasing in fuel-exporting economies in the Middle East.

The WTO says there was a “big misestimation” over growth in Europe, which was muted due to the ongoing impact of high commodity prices, particularly natural gas. The region saw 0.4% growth for exports and a drop of 0.7% for imports.

Global energy prices decreased 41% in the first two months of 2024 compared to their most recent peak, but were still 30% higher than 2019 levels. Grain and fertiliser prices remain high.

“This generated a stronger contraction in trade relative to GDP at the global level, given the larger share of the EU in world goods trade (30% in 2023) compared to world GDP (24% in the same year),” the WTO notes.

Although Europe was the region that contributed the most to world trade volume growth in 2022, it reduced global export growth by 1 percentage point the following year.

It is possible these figures might be revised in future, the WTO adds, to “better account for commodity price volatility over the last two years”.

Looking ahead, Asia is expected to add more to merchandise trade than it has recently and is set to make up 45% of the projected 2.9% growth in world exports this year and 81% of the forecast 2.3% growth in world imports.

Africa’s exports are also projected to surpass their 2019 levels by the end of the year, with exports due to rise by 5.3% and grow faster than those of any other region in 2024.

Depending on how global events play out, international trade volume growth this year could reach as much as 5.8% or drop by 1.6%, the WTO notes.

It says global merchandise trade has shown “remarkable resilience over the past four years”, with volumes in Q4 last year up 6.3% compared to the pre-pandemic peak in Q3 2019.

A sluggish trade environment was reflected in the results of trade finance banks for 2023, which showed activity slowing in a number of key markets.

The WTO expects lower inflation in 2024 to increase demand for goods and boost trade growth, a sunnier outlook also shared by research from the UN Conference on Trade and Development.

While real GDP worldwide slowed last year, it still grew by 2.7%. It is expected to stay stable for the next two years at 2.6% and 2.7% in 2024 and 2025, respectively.

The global value of merchandise trade dropped by 5% to US$24tn, driven by Russian exports plummeting 28% and declines in Asian economies, including a 5% drop for China and 8% for South Korea.


Services stay strong

Services were robust, though, with the value of world trade in commercial services up 9% in 2023 to US$7.54tn, according to the WTO.

Financial services reported an 8% increase in 2023, while insurance saw the “most rapid growth”, rising by 17%. Insurance services exports expanded by 29% in the UK, 26% in the EU and 21% in Switzerland.

This reflects “the present risky environment” stemming from geopolitical tensions, supply chain disruptions and the effects of climate change, the WTO says.

Geopolitical tensions remain a risk factor after Houthi attacks on commercial ships forced vessels to be redirected and avoid passing through the Red Sea and the Suez Canal.

The WTO also flags up the impact of disruptions in the Panama Canal due to low levels of rainfall.

“Under these conditions of sustained disruptions, geopolitical tensions, and policy uncertainty, risks to the trade outlook are tilted to the downside,” says WTO chief economist Ralph Ossa.

But the WTO’s throughput index shows world container traffic has risen “slowly” recently, which implies “a limited impact on trade from recent attacks on shipping through the Red Sea”.

Maritime shipping rates are also well below those seen during the grounding of the Ever Given in March 2021 in the Suez Canal.

It adds that an increase in throughputs at Chinese ports and a simultaneous decline at European ports might be linked to shipping delays, however.

The trade body also says it has seen “preliminary signs of fragmentation in trade flows, with exports and imports reorienting along geopolitical lines”.

It highlights fragmentation in services trade, citing data that shows evidence the US is engaging in friendshoring for its information and communication technology services.

Between 2018 and 2023, US imports from North American trading partners rose from 15.7% to 23%, while US imports from Asian trading partners dropped from 45.1% to 32.6%.

Rising protectionism is another risk that could undermine the recovery of trade in 2024 and 2025,” the WTO says.