Global Trade Slowed in Fourth Quarter, WTO Says; Auto Tariffs, Brexit Are 2019 Risks

GENEVA—World trade shrank by 0.3 percent in the fourth quarter of 2018 and is likely to grow by 2.6 percent this year, slower than 3.0 percent growth in 2018 and below a previous forecast of 3.7 percent, the World Trade Organization said on March 2.

In its annual forecast, the WTO said trade had been weighed down by new tariffs and retaliatory measures, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries. It forecast in September that 2018 growth would be 3.9 percent, down from 4.6 percent in 2017.

WTO Director-General Roberto Azevedo told a news conference that the lower forecast was no surprise, given the trade tensions between the United States and China.

WTO chief economist Robert Koopman said worse may be to come, with an even bigger impact if U.S. President Donald Trump goes ahead with a plan to impose high tariffs on global imports of cars later this year.

“U.S.-China trade is about 3 percent of global trade,” said Koopman. “Automobile trade globally is about 8 percent of global trade. So you can imagine that the impact of automobile tariffs is going to be bigger than the impact of the U.S.-China trade conflict.

“I think it’s pretty clear that any automobile tariff would likely have bigger knock-on effects through the global economy than what we see from the U.S.-China conflict,” Koopman.

Brexit Uncertainty

The WTO did not make a specific prediction about the impact of Brexit, but Koopman said in the worst case it would help push global trade growth down to the bottom end of the WTO’s forecast range in 2019, 1.3 to 4.0 percent.

“The UK’s own analysis suggests that ‘no deal’ or ‘hard Brexit’ would shave 7.6 percent off British GDP. That would be a big number. It would force our numbers down to that lower part of our range,” Koopman said.

“If we end up in the fall with a revision, my guess is the likelihood of a revision is that it’s downward, based on any number of factors from Brexit to no resolution in the U.S.-China trade conflict, and other trade conflicts going on.”

Although the volume of global trade grew only slowly in 2018, the dollar value rose 10 percent to $19.48 trillion, partly because oil prices rose 20 percent, the WTO said.

The value of commercial services trade grew by 8 percent to $5.80 trillion in 2018, driven by strong import growth in Asia.

Goods trade volumes are expected to grow more strongly in developing economies this year, with 3.4 percent growth in exports compared with 2.1 percent in developed economies.

Growth in Asia

Growth in developing Asia could slow for a second straight year in 2019 and lose further momentum in 2020, the Asian Development Bank (ADB) said on April 3.

Developing Asia, which groups 45 countries in the Asia-Pacific region, is expected to grow 5.7 this year, the ADB said in its Asian Development Outlook report, slowing from a projected 5.9 percent expansion in 2018 and 6.2 percent growth in 2017.

The 2019 forecast represents a slight downgrade from its December forecast of 5.8 percent. For 2020, the region is forecast to grow 5.6 percent, which would be the slowest since 2001.

“A drawn out or deteriorating trade conflict between the People’s Republic of China and the United States could undermine investment and growth in developing Asia”, Yasuyuki Sawada, ADB’s chief economist, said in a statement.

The lender also cited uncertainties stemming from U.S. fiscal policy and a possible disorderly Brexit as risks to its outlook because they could slow growth in advanced economies and cloud the outlook for the world’s second largest economy.

“Though abrupt increases in U.S. interest rates appear to have ceased for the time being, policy makers must remain vigilant in these uncertain times,” Sawada said.

Chinese Economy

China’s economy will probably grow 6.3 percent this year, the ADB said, unchanged from its December projection, but slower than the country’s 6.6 percent expansion in 2018 despite recent government stimulus measures including more tax cuts and increased state spending on infrastructure. Growth in the Chinese mainland is projected to cool further to 6.1 percent in 2020.

Beyond trade risks, the ADB said China’s growth will also be retrained by restrictions on shadow banking, which is expected to limit credit expansion even as fiscal stimulus provides some offset.

“I should emphasize although the government would like to stabilize growth, it wouldn’t want to push up the growth rate as in previous years when you saw a big stimulus package, like in the period of 2008-2009,” said Jian Zhuang, senior economist at ADB in Beijing.

Chinese banks may still remain reluctant to lower lending costs for companies partly on worries of rising risks of corporate defaults in a slowing economy. The central bank could take further actions, such as cutting the benchmark 1-year lending and deposit rates, the ADB said.

China has set its 2019 economic growth target at 6.0 to 6.5 percent.

By region, South Asia will remain the fastest growing in Asia Pacific, with the ADB predicting an expansion of 6.8 percent this year - lower than its previous forecast of 7.1 percent - and 6.9 percent next year.

From an estimated 7.0 percent growth in 2018, India’s economy is projected to expand at a faster pace of 7.2 percent in 2019 and 7.3 percent in 2020, the ADB said, as lower policy rates and income support to farmers boost domestic demand.

This year’s growth forecast for Southeast Asia was trimmed to 4.9 percent from an earlier estimate of 5.1 percent, as the Manila-based lender expect Malaysia, Singapore, Philippines and Thailand to grow slower than previously thought. Next year, Southeast Asia is predicted to grow 5.0 percent.

Citing stable commodity prices, the ADB lowered its average inflation forecast for developing Asia to 2.5 percent this year from 2.7 percent previously, and it is expected to remain subdued at 2.5 percent in 2020.

By Tom Miles and Karen Lema