Russia’s war with Ukraine will slow the world economy’s nascent rebound from the pandemic, reduce goods trade and potentially lead to a broader splintering of global commerce, the World Trade Organization said.
The Geneva-based trade body lowered its projection for growth in merchandise trade this year to 3%, down from its previous projection of 4.7%. The WTO also said Tuesday it expects trade growth of 3.4% in 2023 and cited a number of downside risks to its assessment, including food insecurity and a possible resurgence of the virus.
“History teaches us that dividing the world economy into rival blocs and turning our backs on the poorest countries leads neither to prosperity nor to peace,” WTO Director-General Ngozi Okonjo-Iweala said. “The WTO can play a pivotal role by providing a forum where countries can discuss their differences without resorting to force, and it deserves to be supported in that mission.”
The WTO expects world gross domestic product to expand by 2.8% this year, down 1.3 percentage points from the previous forecast of 4.1%. GDP growth should pick up to 3.2% in 2023, close to the average rate of 3% in the decade before the pandemic, the WTO said.
While the Ukraine war and sanctions against Russia will have a meaningful impact global growth this year, trade flows are actually settling back into more recent historical form.
Over the past two years, cross-border commerce has been a surprising tailwind for the world economy—fueled largely by record-high U.S. imports of goods from Asia. Yet if the WTO’s latest projections are met, the trajectory of trade growth means it will drop back into the 1%-3% range that persisted during the decade after the global financial crisis.
While such a return to trend isn’t the optimum result for WTO officials, it’s a far cry from their catastrophic initial projections in 2020—that the pandemic could spark the sharpest collapse of international trade flows in the postwar era.
To prevent that, governments enacted massive fiscal spending packages and accommodative monetary policies that helped soften the blow.
Supply Disruptions
World merchandise trade only fell 5% in 2020—far less than the WTO’s initial worst-case projection of a 32% slump that would have rivaled the Great Depression—before posting a 9.8% rebound in growth in 2021.
Last year’s stimulus-driven consumption of physical goods helped imports rebound strongly in 2021, but supply disruptions and a resurgence of virus variants resulted in rolling lockdowns that restrained economies from getting back to full speed.
This year’s trade disruptions will continue to be a drag on output because Russia’s invasion has roiled markets for crucial commodities like oil, steel, aluminum, fertilizer and grain.
“Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without,” WTO chief Okonjo-Iweala said. “This must not be allowed to happen. This is not the time to turn inward.”
Meanwhile, Beijing’s strict response to Covid outbreaks threatens to slow growth and exports from the world’s No. 2 economy.
“Lockdowns in China to prevent the spread of Covid-19 are again disrupting seaborne trade at a time when supply chain pressures appeared to be easing,” the WTO said. “This could lead to renewed shortages of manufacturing inputs and higher inflation.”
