Growth in global commerce is slowing down, compounding fears in financial markets about declining momentum in the world economy.
The World Trade Organisation has slashed its 2015 merchandise trade growth to 2.8 per cent, down from the 3.3 per cent forecast in April. It added that commerce volumes actually contracted in the first two quarters of the year by an average of 0.7 per cent as import demand from China, Brazil and other struggling emerging market economies slipped.
The downgrade comes after a summer of turmoil in global stock markets triggered by concerns about the health of the Chinese economy in particular. The WTO said that risks to the world economy are “increasingly on the downside”, singling out the possibility of financial ructions from a rate increase by the US Federal Reserve and unanticipated costs from the European migration crisis.
World merchandise trade has been weak since the global financial crisis. If the WTO forecast is accurate, 2015 will be the fourth consecutive year of sub 3 per cent growth. In the 1990s and early 2000s trade volumes were twice the rate of GDP.
Earlier this year the International Monetary Fund forecast global GDP growth of 3.3 per cent. The updated forecasts due next week are also likely to show a downgrade.
Christine Lagarde, the IMF’s managing director, speaking in Washington, said she was “concerned about the state of global affairs” and said “global growth will likely be weaker this year than last”.
The slowdown in global trade has hit the UK’s manufacturing sector hard. The latest GDP estimate from the Office for National Statistics confirmed that the sector has entered a technical recession with output falling by 0.5 per cent in the second quarter.
The latest Quarterly Economic Survey from the British Chambers of Commerce today reinforces that gloomy picture for manufacturing. The survey shows that expectation balances for exports, investment, confidence, employment and cashflow all declined in the third quarter. The BCC’s measure of manufacturing export growth hit a six-year low.
“Global uncertainty, weakened demand from China and the strength of the pound are some of the factors likely hindering performance,” said John Longworth, director general of the BCC. “If the manufacturing sector has entered a prolonged period of slow growth, then closing the trade deficit and improving the current account deficit will become more difficult.”
Nevertheless, there was some better news from the ONS on the current account. It fell to 3.6 per cent of GDP in the second quarter, down from 5.2 per cent in the first quarter, after a fall in the trade in goods deficit. Exports rose by £4.5bn in the quarter and imports fell by £3.2bn.
The UK’s overall GDP growth in the third quarter was unchanged at 0.7 per cent. But there was a downgrade in the annual rate of growth to 2.4 per cent, from 2.6 per cent. The ONS confirmed upward revisions to growth in 2011, 2012 and 2013. But Joe Grice, its chief economist, stressed that it “remains the sharpest downturn and slowest recovery on record”.
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