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WTO Sees Sharp Slowdown in Global Trade, Pointing to Possible Recession

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WTO Sees Sharp Slowdown in Global Trade, Pointing to Possible Recession

World trade in goods is projected to slow sharply next year under the weight of high energy prices, rising interest rates and war-related disruptions, raising the risk of a global recession, according to a new forecast.

Total exports and imports of goods are likely to grow by just 1% in 2023, the World Trade Organization said on Wednesday. That would be down from its previous forecast of 3.4% and its forecast of 3.5% for this year.

The WTO also lowered its forecast for global economic growth in 2023 to 2.3% from earlier expectations of 3.3%, and warned of an even sharper slowdown should central banks raise interest rates too sharply in their efforts to tame high inflation.

The report follows multiple signs that global economic growth is weakening.

“The global economy faces a multipronged crisis,” Ngozi Okonjo-Iweala, director-general of the WTO, the Geneva-based body responsible for enforcing the rules that govern global trade, told reporters in a news conference. “The picture for 2023 has darkened considerably.”

The U.S. trade picture in August reflected the broad slowdown in demand. Exports of goods dropped 0.3% in August from the previous month, the first decline since January, the Commerce Department said Wednesday. Goods imports fell 1.5% during the same period.

When including both goods and services—such as tourism, education and healthcare—total U.S. exports fell 0.3% in August from July, while imports decreased 1.1%. Because imports fell more than exports, the nation’s trade deficit shrank 4.3% last month. The strong dollar makes imports cheaper for U.S. consumers while making American products more expensive for foreign buyers.

U.S. energy companies have benefited this year from higher prices and increased U.S. exports of oil and natural gas resulting from trade disruptions connected to Russia’s invasion of Ukraine.

This dynamic shifted in August, a period when demand eased and prices softened from highs hit earlier in the summer. U.S. natural gas exports rose but oil exports fell, while oil imports rose.

The Organization of the Petroleum Exporting Countries and its Russia-led allies on Wednesday agreed to cut oil production by two million barrels a day, a move likely to keep upward pressure on energy prices. Oil prices rose after the announcement, with international benchmark Brent crude rising more than 2% to $93.90 a barrel by midday Eastern time in the U.S.

The U.S. average price of regular unleaded gasoline was $3.83 a gallon on Wednesday, according to OPIS, an energy-data and analytics provider that is part of Dow Jones & Co., publisher of The Wall Street Journal. That is down from just over $5 a gallon in early June but more than 60 cents a gallon above the price a year ago.

OPEC’s decision also could undermine efforts by the Group of Seven wealthy nations to cap Russian oil prices, a key part of the West’s economic battle with Moscow in response to the invasion.

The annual rate of inflation across the Group of 20 largest economies held at 9.2% from June to August, the Organization for Economic Cooperation and Development said Tuesday.

The WTO said a trade slowdown could help cool price pressures by further improving supply chains and reducing transportation costs.

A measure of supply-chain pressures compiled by the Federal Reserve Bank of New York has fallen each month from April to August.

Freight costs have declined rapidly over recent months. “A key factor behind this is likely to have been easing goods demand,” wrote Kiki Sondh, an economist at Oxford Economics, in a note to clients.

Factory prices charged by companies in most of Asia declined in September for the first time since the middle of 2020, according to purchasing managers indexes for the region, a sign that cooler trade growth may bring some relief on inflation, said Fred Neumann, chief Asia economist at HSBC in Hong Kong.

The Federal Reserve and other central banks are raising interests aggressively to combat high inflation by curbing hiring, spending and investment. These moves have contributed to weakening demand and economic activity in the U.S. and many other countries. Some economists and some policy makers worry rates may climb higher than needed and cause a recession.

“There is a danger you could overshoot,” Ms. Okonjo-Iweala said.

Demand for goods soared in late 2020 as global economies bounced back from Covid-19 disruptions, fueling a surge in trade volumes in 2021.

Now, signs of a global trade slowdown abound in Asia and Europe.

South Korea’s exports grew an annual 2.8% in September, the weakest performance since October 2020, the country’s trade ministry said Tuesday.

In China, the world’s second-largest economy, an export boom that propelled its economy through the pandemic is petering out. China’s demand for imports from its neighbors is also softening as its economy labors under a severe real-estate squeeze and the government’s zero-tolerance approach to Covid-19.

Europe’s exports to Russia have collapsed in responses to sanctions imposed on the Kremlin following its invasion of Ukraine, according to the European Union’s statistics agency. But its exports to the U.S. have grown rapidly.

Wednesday’s U.S. trade report provided “another confirmation of a softening global economic backdrop as demand weakens and businesses pull back on investment,” Matthew Martin and Kathy Bostjancic, U.S. economists for Oxford Economics, a research firm, wrote in a note.

 

Paul Hannon

Πηγή: wsj.com

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