Growth in global trade is expected to remain “subdued” this year, following a significant slowdown in the fourth quarter of last year amid geopolitical tensions and macroeconomic headwinds, according to the UN Conference on Trade and Development (Unctad).
Trade is set to stagnate in the first quarter of 2023, but the outlook is more positive for the second half of the year, the UN body said on Thursday in its latest update on global trade.
Global trade in goods during the first three months of this year is forecast to increase by about 1 per cent, while trade in services is expected to increase by about 3 per cent, from the fourth quarter of 2022, according to the report.
“Deteriorating economic conditions, the lifting of zero-Covid policies, and renewed concerns about inflationary pressures have resulted in a significant trade slowdown during the fourth quarter of 2022. While the economic outlook has improved, global trade growth is expected to remain subdued in 2023, with the possibility of a pickup in the second half of the year,” Unctad said.
The UN body's forecast for global trade comes amid challenging macroeconomic conditions and the continuing Ukraine-Russia war.
Global inflation is forecast to fall to 6.6 per cent in 2023 and 4.3 per cent in 2024, according to the International Monetary Fund's latest forecast.
Higher oil prices and Russia's war in Ukraine exacerbated inflation in 2022.
A strong US dollar also led to an increase in import prices and food costs globally last year, but the dollar began to depreciate in September, a situation that is expected to help ease inflationary pressures further this year.
Geopolitical factors, persisting inflation and concerns about global debt sustainability will weigh on international trade flows, according to Unctad.
“Geopolitical tensions, including the Russian Federation’s conflict with Ukraine, remain the biggest risks negatively affecting international trade during 2023.”
Interest rates are also expected to remain relatively high in many economies as central banks attempt to tackle persistent inflationary pressures.
Commodity prices are expected to remain above pre-pandemic averages, especially for energy, food, and metals, Unctad said.
“The current record levels of global debt, coupled with high interest rates, will continue to negatively affect the macroeconomic conditions of many countries.”
On the other hand, positive factors such as an improved economic outlook for major economies, decreasing shipping costs, a weakening of the US dollar and rising demand for services will help bolster global trade.
“Overall, although the outlook for global trade remains uncertain, the positive factors are expected to compensate for the negative trends,” Unctad said.
The UN body expects international trade patterns in 2023 to be affected by “near-shoring”, or relocating production processes closer to target markets, and “reshoring”, bringing manufacturing back to home countries, as companies focus on improving supply chain resilience.
This may lead to “some degree of decoupling between major economies and result in regionalisation of international trade”.
Trade policies geared towards the green transition will also reshape global flows of goods and services.
“The patterns of international trade are anticipated to become more closely tied to the transition towards a greener global economy,” Unctad said.
“As countries increasingly integrate climate commitments into trade and industrial policies, concerns regarding possibly restrictive trade practices may lead to changes in the global trade landscape.”
Green goods buck downwards trade trend
Trade in environmentally-friendly goods continued to increase throughout the second half of 2022, bucking the downwards trend in overall global trade.
Global trade hit a record $32 trillion last year, but amid deteriorating economic conditions and rising uncertainties, growth turned negative in the last half of the year.
The silver lining was the strong performance of trade in “green goods” which held strong throughout the year, Unctad said.
Green goods refer to products that are designed to use fewer resources or emit less pollution than traditional products.
Green goods trade grew by about 4 per cent in the second half of the year. Their combined value hit a record $1.9 trillion in 2022, up more than $100 billion compared to 2021.
Electric and hybrid vehicles, non-plastic packaging and wind turbines performed especially well, the report showed.
“This is good news for the planet,” Alessandro Nicita, one of the report’s authors, said.
“These goods are key to protecting the environment and fighting climate change.”
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
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Fighting between the Russia-backed rebels and Ukrainian forces has killed more than 14,000 people. In 2015, France and Germany helped broker a peace deal, known as the Minsk agreements, that ended large-scale hostilities but failed to bring a political settlement of the conflict.
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