External Expansion Limited

Wednesday, 16 April 2014


The Director General, Roberto Azevêdo, explained a few days ago in his conference about that least develouped countries grew below the average for previous years 2012 and 2013. However, they may continue to benefit from the upturn in European economy, since much of its exports go to this continent. The first thing he mentioned in his conference was that years have been very hard for the growth of world trade.

In 2009, following the global financial crisis, trade suffered its biggest drop on record, down 12% in volume terms and 23% in dollar terms compared to the previous year. Since then they haven't slipped back into world trade which means good news, but apart from the partial recovery in 2010, growth has remained well below the historical average and particularly in the last 2 years has been slow.
Analyzing their predictions 2013, initially forecast a growth of 3.3%, later revised to 2.5% due to drowngrading of GDP forecast during the year. The major assumptions that led to the readjustment was that in 2013 the EU recession ended in the second quarter rather than the first, and both trade and output in large developing economies were slower than expected. World trade slowed to just 2.1% in real volume terms in 2013, marginally lower than the previous year, confirming the moderate growth scenario outlined.
From that introduction raised forecasts for 2014 and 2015, claiming that if GDP forecasts are valid, they expect a broad-based but modest upturn in the volume of world trade in 2014, and further consolidation of this growth in 2015.
For 2014 world trade should rise by 4.7% even without to reach the historical average, but it would be better than last year and it would definitely be a step in the right direction. Forecasts for 2015 are much more uncertain, since they are based on longer-term assumptions about the evolution of the global economy from here on out and with the present situations that completely alter any predictions given the uncertainty it represents for a possible trade war by the growing conflict in Ukraine. So they expect an increase of 5.3% in world trade in 2015 going to be in line with the average of 20 years ago.
Behind these numbers is the expectation that trade growth in Asia continue outperforming other regions, while Europe would continue to lag behind, as high unemployment curbs consumer demand for some years ahead. A return to positive growth in trade flows from the EU would make a very important contribution to the growth of global trade, as the EU accounts for about one third of world trade, the WTO data observed closely for the recovery in the EU is more disappointing.
Then the Director General emphasize on two points of interest. The first point of interest, the ratio between trade growth to GDP growth, where the average ratio since the mid-1980s was about 2 to1 with trade growing at twice the rate of GDP, and in last two years, the ratio became close to 1 to1. This data is categorized as rare in the absence preceding equal growth between trade and GDP, so becoming a trend were to keep a watch on it.
The second point of interest, is what has been happening in the Least Developed Countries (LDCs), which are the poorest countries by the WTO membership and so their evolution is something they should follow more closely. The economic performance of LDCs are more closely linked to the external environment to the largest emerging markets, having suffered a deeper impact by the global slowdown in the last two years. The growth in the dollar value of LDC exports was 1% in 2012 and 5% in 2013, representing this data well below the 13% average since 2005 and down sharply from the 24% increase registered in 2011. Nevertheless, LDCs can benefit disproportionately from any improvement in the world economy going forward, since a large portion of their exports (nearly 20%) goes to the recovering European Union.
They concluded, it will be clear that trade will improve as the global economy also improved, without waiting for an automatic increase in trade is sufficient for WTO Members. Therefore, actively support trade growth by avoiding protectionism in these uncertain times and, of course, by updating the rules and reaching new trade agreements.
It realized a mention of the agreement in Bali last December that illustrate the drastic reduction of the cost of doing business across borders, particularly in developing countries, while supporting LDCs to obtain preferential access to markets, therefore made every effort to be moving towards the conclusion of the Doha Development Agenda as soon as possible.
Now they are talking about new ideas and new approaches that help make the job faster. At the conclusion of the round would provide a strong foundation for trade in the future, and a powerful stimulus in today’s slow growth environment.
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Until the next article...

Leonardo Dufau


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