World merchandise trade volume is expected to grow only 3% this year, down from 4.7% from previous forecasts, and 3.4% in 2023, although these numbers may be revised given the uncertainty surrounding the conflict.
The Russian invasion began on February 24, and the WTO said the most immediate impact of the war was a sharp rise in commodity prices.
Decreasing supplies, rising prices
Both Russia and Ukraine are key suppliers of essential goods such as food, energy and fertilizers, the supply of which is now under threat.
Grain shipments through Black Sea ports have also been disrupted, with potentially disastrous consequences, especially for poorer countries.
“Dwindling supplies and rising food prices mean the world’s poor may be forced to go without. This shouldn’t happen.” said Ngozi Okonjo-Iweala, the Director General of the WTO.
More trade needed
The war is unfolding as other factors impact global trade, including the latest COVID-19 lockdowns in China, which are once again disrupting maritime trade just as supply chain pressures seemed to be easing. ‘mitigate.
Ms. Ngozi Okonjo-Iweala urged governments to work with multilateral organizations such as the WTO to facilitate trade.
“In times of crisis, more trade is needed to ensure stable and equitable access to basic necessities. Restricted trade will threaten the well-being of families and businesses and make it harder to build a sustainable economic recovery from COVID-19,” she says.
Estimating the impact of war
Given the paucity of data on the economic impact of the conflict, WTO economists have had to rely on simulations for their assumptions about global gross domestic product (GDP) growth through 2023.
Their estimates reflect the direct impact of the war, including the destruction of infrastructure and increased trade costs; the impact of Russian sanctions, including the blocking of Russian banks from the SWIFT international banking payment system; and reduced aggregate demand in the rest of the world – partly due to growing uncertainty.
The WTO said global GDP at market exchange rates is expected to grow 2.8% this year, 1.3 percentage points lower than previous forecasts.
Output growth is expected to reach 3.2% in 2023, “assuming continued geopolitical and economic uncertainty”, which is close to the average rate of 3.0% for the period 2010-2019.
In the Commonwealth of Independent States (CIS) region – created after the dissolution of the Soviet Union in 1991, and which excludes Ukraine – GDP is expected to fall by 7.9%, leading to a 12% drop in imports .
However, exports are expected to increase by almost 5% as other countries continue to depend on Russian energy.
“If the situation were to change, we could see stronger export volume growth in other fuel-producing regions,” said the WTO.
Weak growth in merchandise trade
Given current GDP assumptions, the agency projected that merchandise trade volume growth this year could be as low as 0.5% or as high as 5.5%. The figures will be updated in October or earlier, if necessary.
The volume of world merchandise trade grew about twice as fast as world GDP in the two decades preceding the global financial crisis of 2007-2008. The ratio fell to around 1:1 on average following the crisis.
If current forecasts materialize, they suggest that there will be no fundamental change in the relationship between trade and production.
“Risks to the forecast are mixed and difficult to assess objectively,” the WTO said. “There is upside potential if the war in Ukraine ends earlier than expected, but substantial downside risks could emerge if fighting persists for an extended period or if the conflict escalates.”
WTO and UNCTAD
Oil and natural gas
World fuel prices were already rising before the war. Last month, the benchmark crude oil price was $118 a barrel, up 38% from January and more than 80% year-on-year. Daily prices have moderated recently, falling from a peak of $128 a barrel on March 8 to $104 on April 1.
Unlike oil prices, the cost of natural gas diverged greatly from region to region. In Europe – where many countries still rely on Russian supplies – the price rose 45% between January and March, to $41 per million British thermal units (Btu). The price remained relatively low in the United States, at around $4.9 per million Btu.
The WTO said higher oil prices could reduce real incomes and import demand around the world, while higher natural gas prices would likely have a bigger impact in Europe.
Effect of sanctions
Trade forecasts have been published together with annual statistics on trade in goods and commercial services.
Merchandise trade volume, measured by the average of exports and imports, grew by 9.8% in 2021, with its value increasing by 26% to $22.4 trillion.
Trade in commercial services, which includes the transportation sector and covers container shipping and the air passenger industry, also grew by 15% in 2021, reaching $5.7 trillion.
Although trade in the travel sector was generally positive, trade figures remained weak as COVID-19 restrictions were only partially eased during the year.
The WTO has said Western sanctions against Russian companies and individuals are likely to have a significant effect on trade services.
“Before the pandemic, travel/tourism and air transport services were the most traded services by Russia, accounting for 46% of its exports and 36% of its imports. These services, already hard hit by the pandemic, could be heavily impacted by economic sanctions,” the agency said.