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The World Trade Organization (WTO) has cut its 2023 outlook for global trade, as a hoped-for rebound from the slump that began at the end of last year failed to materialise.

In an updated outlook released last week, WTO economists now expect world merchandise trade volumes to grow by just 0.8% this year. This is less than half the 1.7% annual increase predicted in April, when the prospect of falling energy prices and the end of Chinese pandemic restrictions looked set to drive a recovery from the abrupt slowdown that began in the fourth quarter of 2022.

However, the WTO says, strained property markets have prevented a stronger revival from taking root in China, and inflation has remained sticky in the US and the European Union. “Together with the after-effects of the war in Ukraine and the Covid-19 pandemic, these developments have cast a shadow over the outlook for trade in 2023 and 2024,” the intergovernmental organisation adds.

A closer look at the WTO’s figures reveals a broad-based slowdown across a wide array of goods, including iron and steel, office and telecom equipment, textiles, and clothing – although a notable exception is passenger vehicles, which have seen a surge in sales so far this year.

All global regions except for Asia are expected to post lower trade growth this year than they did in 2022. For 2023, Asia’s trade volumes are expected to grow by 0.6%, up from 0.4% last year – marking the second year running that the region’s trade growth has been below the global average.

Asia-focused banks are also feeling the pinch of a flagging trade environment. Several major lenders recently attributed flat or declining trade finance revenues to sluggish goods trade in the region.

For 2024, the picture is a rosier one. The WTO expects slow but stable GDP growth and a moderation in inflation and interest rate increases to push trade volume growth up to 3.3%. However, it cautions that threats to this relatively upbeat outlook are starting to emerge in the shape of supply chain fragmentation – a view shared by Standard Chartered Global Research.

“Despite recent efforts to restore the WTO’s relevance, the push towards trade liberalisation is generally happening outside the WTO structure, mostly in the form of bilateral or regional free trade agreements that tend to reinforce the fragmentation of global trade into specific corridors and regional pacts,” the bank’s economists say in a report published this month.

“We do see some signs in the data of trade fragmentation linked to geopolitical tensions,” says Ralph Ossa, the WTO’s chief economist. “Fortunately, broader deglobalisation is not here yet. The data suggest that goods continue to be produced through complex supply chains, but that the extent of these chains may have plateaued, at least in the short run. Positive export and import volume growth should resume in 2024, but we must remain vigilant.”

To ensure trade can turn its fortunes around, WTO director-general Ngozi Okonjo-Iweala is calling for WTO members to “seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy”, adding that, for the world’s poorest countries, recovery will not be possible without a stable, open, predictable, rules-based and fair multilateral trading system.