WASHINGTON, DC – Prospects for growth in global trade in 2016 and 2017 have been downgraded again. The World Trade Organization (WTO) now expects that trade this year will increase at its slowest pace since the post-2008 global recession. What is going on?
This is not purely a function of an anemic global economic recovery. After all, trade growth has typically outpaced GDP growth; in the years before the 2008 global financial crisis, the average increase was double that of output. But the ratio of trade growth to GDP growth has been falling since 2012, a trend that will culminate this year, with GDP growth outpacing trade growth for the first time in 15 years.
This reversal is driven partly by structural factors, including a plateau in the expansion of global value chains and a turning point in the process of structural transformation in China and other growth frontiers. The rising share of services in countries’ GDP likely implies further downward pressure on trade flows, given services’ lower trade propensity relative to manufactured goods.
But not all of the forces undermining trade are so long-term. Crisis-related, temporary, and potentially reversible factors have also had an impact. For example, the economic hardship faced since 2008 by many eurozone countries, which have traditionally accounted for a substantial share of global trade, has discouraged consumption, hiring, and much more. The weak recovery of fixed investment in advanced economies has also undermined trade, because investment goods involve more cross-border exchange than consumer goods do.