World trade shrank by 0.3 per cent in the fourth quarter of 2018 and is likely to grow by 2.6 per cent this year, slower than 3 per cent growth in 2018 and below a previous forecast of 3.7 per cent, the World Trade Organisation said on Tuesday.
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, according to Reuters. It forecast in September that 2018 growth would be 3.9 per cent, down from 4.6 per cent in 2017.
"With trade tensions running high, no one should be surprised by this outlook. Trade cannot play its full role in driving growth when we see such high levels of uncertainty," said WTO director-general Roberto Azevedo.
"Of course, there are other elements at play, but rising trade tensions are the major factor," he said. "I think it’s pretty obvious that the tensions between the United States and China play a big role."
He declined to predict the impact of Britain's departure from the European Union.
Although the volume of trade grew only slowly in 2018, the dollar value rose 10 per cent to $19.48 trillion, partly due to a 20 per cent rise in oil prices, the WTO said.
The value of commercial services trade grew by 8 per cent to $5.8tnn 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 per cent growth in exports compared with 2.1 per cent in developed economies.
But the forecast is highly uncertain, with this year's 2.6 per cent global growth figure just the midpoint of a range from 1.3 to 4 per cent. The actual growth rate could be even higher or lower if trade tensions grow further or ease, the WTO said.
"Most risks remain firmly on the downside, with upside potential hinging on a relaxation of trade tensions," the WTO report said.
WTO chief economist Robert Koopman said worse may be to come, with an even bigger impact if US President Donald Trump goes ahead with a plan to impose high tariffs on global imports of cars later this year.
"US-China trade is about 3 per cent of global trade. Automobile trade globally is about 8 per cent of global trade. So you can imagine that the impact of automobile tariffs is going to be bigger than the impact of the US-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 US-China conflict."
While the WTO did not make a specific prediction about the impact of Brexit, Mr 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 per cent.
"The UK's own analysis suggests that 'no deal' or 'hard Brexit' would shave 7.6 per cent off British GDP. That would be a big number. It would force our numbers down to that lower part of our range," Mr 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 US-China trade conflict, and other trade conflicts going on."
Central bankers and other policymakers have long warned of the impact of trade tensions on sentiment. The OECD cut its 2019 global forecast last month and said a materialisation of risks related to protectionism could mean even weaker growth. The IMF, which will update its outlook next week, downgraded its view in January, when it also warned that threats were on the increase.
The WTO report cited various risks to trade growth including new tariffs and retaliatory measures affecting widely traded goods, according to Bloomberg. It said volatility in financial markets and tighter monetary conditions also weighed on global trade growth rates.
The organisation said the worst case scenario of a global trade war would lead to a reduction in world GDP in 2022 of about 2 per cent and a reduction in global trade of about 17 per cent compared to baseline projections. Under the WTO’s worst case scenario, international cooperation on tariffs breaks down completely and all countries set tariffs unilaterally.