Global trade growth is projected to more than double this year, fueled by low inflation and a robust US economy. This forecast comes from the three major international economic organisations: the International Monetary Fund (IMF), the Organization for Economic Co-operation and Development (OECD), and the World Trade Organization (WTO).
Due to favourable foreign trade policy, they predict an increase in global trade flows in 2024, following a slowdown in 2023 caused by rising interest rates, higher prices, and stagnant demand.
World Trade On The Rise Again
The OECD forecasts global trade in goods and services to grow by 2.3% this year and 3.3% in 2025, more than double the 1% growth experienced in 2023. The first OECD Economic Outlook of 2024, released in April, anticipates that falling inflation will allow central banks to start lowering interest rates, although real rates are expected to stay “above estimated neutral levels.”
The IMF’s latest World Economic Outlook predicts world trade growth at 3% for 2024 and 3.3% for 2025, despite revising its projections downward from earlier in the year. The WTO projects world merchandise trade volumes to increase by 2.6% in 2024 and 3.3% in 2025, following a significant decline last year.
What Is Causing World Trade to Boost?
Clare Lombardelli, the OECD chief economist, informed the Financial Times about growing trade in tandem with broader economic growth. The IMF’s World Economic Outlook predicts slow but steady economic growth of 3.2% for 2024 and 2025. It includes a slight increase for advanced economies but a little lower growth for developing and emerging economies.
The IMF also forecasts that the global economy will experience less “economic scarring” from the successive crises of the past four years which raised energy and food prices and led to high interest rates. The organisation notes that the US economy has already overcome these impacts and performs better than its pre-pandemic levels. As reported by the Financial Times, Lombardelli expects China and East Asia to be the primary drivers of global growth.
According to the WTO, Africa is projected to have the fastest export growth this year at 5.3%, albeit from a low base. North America (3.6%), the Middle East (3.5%), and Asia (3.4%) are all expected to see moderate export growth. In comparison, European exports are predicted to lag behind other regions at just 1.7%. All three organisations anticipate a decline in headline interest rates, with the OECD predicting they will fall to around 2% for the Euro area, the US, and Japan by 2025. A decrease of 3.4% is expected across all member countries this year and next.
Risk Factors for International Trade Growth
Despite the promising outlook from the OECD, IMF, and WTO, global trade faces ongoing challenges. Director of WTO, General Ngozi Okonjo-Iweala, emphasised the need to address trade fragmentation and geopolitical tensions to maintain growth.
The WTO report highlights delays caused by the Red Sea conflict and crisis in the Middle East, which leads to increased shipping costs for specific sectors. It also notes signs of trade fragmentation and a shift in trade patterns along geopolitical lines.
The WTO also warns of environmental risks, such as low water levels in the Panama Canal, a crucial global shipping route. Along with geopolitical issues, these are affecting major trade channels like the Suez Canal.
Global Trade Growth Remains Uncertain
All three organisations highlight ongoing monetary risks. Inflation may take longer to decrease than expected, interest rates are likely to remain volatile, and there could be delayed impacts for those with long-term high-interest rate commitments, such as mortgage holders.
The OECD instructs careful monetary policy to contain inflation and manage growing debt burdens in response to increasing government debt. It also advocates for stronger investment policies to drive long-term growth and improve living standards by fostering innovation and addressing climate change.
While developed countries can be more optimistic about the future, the IMF warns of a widening gap between these nations and many low-income countries. These markets face low growth and high inflation, necessitating structural reforms to encourage domestic and international investment, reduce reliance on funding, manage debt, and mobilise young populations.
Takeaways
According to the three major international economic organisations, global trade growth could more than double this year following the foreign trade policy. Despite reduced interest rates, lower inflation, and increased economic activity, continued risks and economic disparities threaten international trade. The World Economic Forum’s Global Future Council on Trade and Investment advocates reshaping global trade to promote sustainable, resilient, and equitable growth.
