Global trade growth to remain subdued in 2023, Unctad says

Ukraine war, high commodity prices and record levels of global debt will weigh on international trade

A container ship at Qinzhou Port in southern China. AP

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.”