Bad news about the health of the $100tn global economy keeps coming amid a weakened momentum.
The World Trade Organisation has said 2023 global trade growth would be slightly better than feared, but would remain “subpar”, weighed down by the Ukraine war and stubbornly high inflation.
WTO economists expect to see the volume of global merchandise trade slow to 1.7% this year — a full percentage point lower than in 2022.
That forecast is slightly better than feared last October, when the WTO projected 2023 trade growth would be as low as 1%, but a far cry from the 3.4% expansion initially projected a year ago.
The organisation’s economists also estimated that real global GDP growth at market exchange rates would be 2.4% this year, a notch above the 2.3% forecast in October.
The WTO’s report has cautioned that “the pace of trade expansion in 2023 is still expected to be subpar, weighed down by the ongoing war in Ukraine, stubbornly high inflation, tighter monetary policy and financial uncertainty”.
There are several factors causing the steep decline, including elevated global commodity prices, monetary policy tightening in response to inflation and outbreaks of Covid-19 that disrupted production and trade in China.
Higher commodity prices helped the value of world merchandise trade to rise 12% in 2022 to $25.3tn. Looking forward, the WTO said trade growth in 2024 should rebound to 3.2%, while GDP picks up to 2.6%.
In addition, the International Monetary Fund has warned that its outlook for global economic growth over the next five years is the weakest in more than three decades. The Fund has urged nations to avoid economic fragmentation caused by geopolitical tension and take steps to bolster productivity.
The IMF slightly lowered its outlook for the global economy yesterday, while predicting that most countries will avoid a recession this year despite economic and geopolitical concerns.
The IMF predicted the global economy will grow by 2.8% this year and 3% in 2024, a decline of 0.1 percentage point from its previous forecasts in January.
The leadership of the World Bank and IMF hopes to use this year’s spring meetings to promote an ambitious reform and fundraising agenda.
But their efforts will likely be overshadowed by concerns among member states over high inflation, rising geopolitical tension, and financial stability.
The overall picture painted by the IMF outlook is a gloomy one, with global growth forecast to slow in both the short and medium terms.
Close to 90% of advanced economies will experience slowing growth this year, while Asia’s emerging markets are expected to see a substantial rise in economic output — with India and China predicted to account for half of all growth, IMF managing director Kristalina Georgieva said last week.
The global economy surpassed $100tn for the first time in 2022 but will stall in 2023 as policy makers continue their fight against soaring prices, the Centre for Economics and Business Research — the British consultancy — said in January.
Indeed, 2023 was supposed to be the comeback year for the world economy following the Covid pandemic. Instead, it is marked by a continuing war, record inflation and climate-linked disasters.
It is a “polycrisis” year, a term popularised by historian Adam Tooze.
Many countries are now grappling with cost-of-living crises because wages are not keeping up with inflation, forcing households to make difficult choices in their spending.
Above all, 2022 was the year of inflation.
Make no mistake, 2023 is going to be eventful as well as crucial. Policy makers, businesses and investors need to prepare themselves to pursue different strategies to protect value and seize opportunities.