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Stronger than expected growth spurs trade recovery

Stronger than expected growth spurs modest trade recovery

Propelled by higher than expected economic growth in Asia and the United States, world trade recovered at an increased rate in 2003, and could expand further in 2004 should the global economy continue to improve, according to the World Trade Organization’s latest figures, released today (5 April 2004).

A 2.5 per cent increase in global output in 2003 spurred world trade to recover by 4.5 per cent. While this growth was stronger than expected a year ago after the outbreak of severe acute respiratory syndrome (SARS) and the build-up of tensions in the Middle East, trade and output expansion in real terms in 2003 remained below the average rates recorded since 1995.

However, WTO economists say that with global GDP growth expected to reach 3.7 per cent in 2004, world trade could expand by 7.5 per cent in 2004, although there are a number of risks associated with these projections — including the possibility of slower than expected import growth in the United States and a faltering in demand recovery in Western Europe.

“Clearly, the improved economic situation in the United States and Asia has given an important boost to world trade,” said WTO Director-General Supachai Panitchpakdi. “But when you look around the world, the pace of trade growth remains uneven and there remain many barriers to trade globally. Greater expansion of trade would provide support for sustained economic growth and job creation. If this potential is to be realised the many trade distortions that exist must be addressed, and the best way to do that is to bring about a successful conclusion to the Doha Development Agenda.”

In 2003, Asia and the transition economies were the regions recording the most dynamic trade performance. Their merchandise exports and imports expanded in real terms (i.e. adjusted for price changes) between 10 per cent and 12 per cent, more than twice as fast as world merchandise trade.

China’s imports expanded by a remarkable 40 per cent in nominal dollar terms (i.e. not adjusted for price changes) while its exports expanded by 35 per cent, unprecedented levels of expansion for a country with such substantial trade volume.

But Western Europe and Latin America recorded weak real import growth — the weakest in fact of all regions — at less than 2 per cent, reflecting the sluggishness of their economies.

For the third successive year, United States import growth exceeded the world average. This buoyancy has been a significant factor in mitigating sluggish world trade growth over the last few years. However, US import growth continues to exceed export growth, further widening the trade deficit.

Commodity price and exchange rate changes led to a 10.5 per cent strengthening of world merchandise trade prices in 2003. For the first time since 1995, dollar prices increased for both agricultural and manufactured products.

The impact of price and exchange rate developments on nominal trade flows differed sharply by region. As West European currencies appreciated strongly vis-à-vis the dollar, the dollar merchandise export value of Western Europe expanded faster than world trade despite a near stagnation in volume terms. World merchandise exports rose by 16 per cent to $7.3 trillion and commercial services exports by 12 per cent to $1.8 trillion in 2003. For both merchandise and services trade, this was the strongest annual increase in nominal terms since 1995.

Developing countries’ merchandise exports expanded by 17 per cent in 2003, slightly faster than their imports and the world average. The overall trade surplus widened for these countries. But according to estimates based on incomplete data, developing countries’ commercial services exports and imports expanded at only half the rate of world services trade in 2003.

Major trade developments in 2003, at country level, include the extraordinary expansion of China’s merchandise trade. China leapfrogged three positions and currently ranks, for the first time, number three among the world’s leading merchandise importers.

Nominal export growth in excess of 20 per cent was recorded by many oil exporting countries (e.g. Russia and Saudi Arabia) and in countries with strongly appreciating currencies, in particular in Western Europe. The euro’s appreciation is reflected in the fact that Germany’s merchandise exports again exceeded those of the United States.

Gains in the ranking of the leading commercial services traders in 2003 were principally recorded by Western European countries at the expense of American and Asian countries. This observation is valid for both export and import rankings. It is estimated that in 2003 China became the largest exporter of commercial services among the developing countries.

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