Global trade: slowdown after a boom year

GENEVA, MAY 23. Global trade and output growth were the strongest last year in more than a decade, observes the latest WTO Annual Report.

This outstanding expansion of the world economy was the result of the continued acceleration of output growth in the already fast expanding economies of North America and developing Asia, a recovery from output stagnation in South America and Russia and a pick-up in economic activity in other regions. In addition to the outstanding global growth, the dispersion of regional growth rates was very low in 2000, indicating that the stronger world economy was beneficial to all regions. In the second half of the year, however, there were numerous signs that the expansion of the world economy had begun to slow down (Chart).

Stronger output growth in all regions was associated with trade expansion that matched - in volume terms - the best rates observed over the last five decades. For most regions, merchandise trade growth ranged between 10 and 15 per cent. Although the U.S. merchandise imports continued to grow at double-digit rates, the growth was no longer the highest among the regions. Imports of Asia and the transition economies expanded faster, and those of Latin America matched the U.S. figures.

The information and telecommunication sector was again one of the most dynamic sectors stimulating the expansion of output, investment and trade, says the report. Although the final quarter of 2000 recorded a slackening in the "new economy" boom, the average annual growth remained very high.

Although office and telecom equipment was again one of the fastest growing product categories in international trade, the nearly 60 per cent rise in crude oil prices led to a dramatic increase in the value of fuels traded internationally and dwarfed the growth of all other product categories.

Real oil prices reached their highest level since 1985 and the share of fuels in world merchandise trade is estimated to have recovered to somewhat above 10 per cent, close to its share in 1990. Prices for all internationally-traded goods remained almost unchanged from the preceding year as sharply higher prices for fuels were offset by declines in the prices of manufactured goods.

The price decline in 2000 for manufactures was the fifth in a row, causing prices to fall to their lowest level in 10 years. Several factors contributed to this outcome. First, inflation has receded worldwide to levels last seen in the 1960s. Second, the share of office and telecom equipment in world exports of manufactures increased and their prices have fallen considerably throughout the 1990s. Third, the strength of the U.S. dollar over the last few years which led to a dollar price decline for those goods traded at nearly stable prices in depreciating currencies.

Non-fuel commodity prices edged up slightly in 2000 as the recovery in metal prices and the higher prices for agricultural raw materials were not fully offset by price decreases for beverages and food.

In 2000, the value of total merchandise exports rose by 12.5 per cent to $6.2 trillion, thereby exceeding for the second year in a row the growth of commercial services exports, which rose by nearly 5 per cent to $1.4 trillion.

All major regions share growth

Economic activity strengthened in 2000 in all major regions leading to the fastest global output growth in the last decade. North America, the transition economies and Western Europe recorded their best annual GDP growth in ten years. Thus, in 2000, the U.S. was no longer the single motor of the world economy as in the preceding years.

Merchandise trade

Three main factors shaped the developments of world merchandise trade in nominal dollar terms. First, the high level of economic activity worldwide that boosted the overall volume growth.

Second, the sharply divergent sectoral price trends concealed by the near stability of average dollar prices in international trade.

While prices of fuels and metals recovered strongly, average prices of agricultural primary commodities stagnated and those of manufactured goods decreased (the weakness in world export prices of manufactures is primarily associated with exchange rate developments).

Third, the variations among the three key currencies - dollar, euro and yen - not only had an impact on regional but also on sectoral trade flows.

Outlook for current year

The report concludes that the world economy is retreating this year from the high growth path seen last year. All major geographic regions will be affected with the exception, perhaps, of Africa which recorded the weakest growth of all the regions in 2000. North America, the transition economies and developing East Asia - other than China - are projected to experience a sharp deceleration in GDP in 2001. Japan's fragile economy is not expected to recover. Growth rates in Western Europe and Latin America are expected to slow by about one half of one per cent.

The development of the U.S. economy is considered to be the key element not only because of its weight in the global output and trade but also due to its leadership in the "new economy".

The current slowdown will therefore also be a test for the "new economy" which was one of the principal driving forces in the expansion, not only of the U.S. economy and other advanced economies, but also of international trade.

A cyclical cutback of IT-related investment expenditure could be quite significant and have marked repercussions given the increased importance the IT sector has gained throughout the 1990s in output, employment and trade.

The prospects for world trade in 2001 clearly have become more clouded in recent months. The deceleration of global trade growth had set in during the final months of 2000 and is expected to continue for most of 2001.

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