2004 trade growth to exceed 2003 despite higher oil prices

Despite the sharp rise in oil prices the volume of world trade is likely to grow by 8.5% in real terms by the end of 2004, a significant improvement over 2003, according to World Trade Organization statistics.

While the price increases for oil and other commodities may dampen growth in trade and overall output in 2005, these effects are being outweighed in 2004 by vigorous trade expansion in many countries and stronger than expected recovery in several others. The vigorous trade expansion observed in the first half of 2004 is expected to provide enough momentum to raise global trade volume by 8.5%, according to the report.

“Growth in world trade in 2004 will not be adversely affected by higher oil prices to any great extent because we are seeing good growth in trade and output in China, Latin America and Africa. We have also seen stronger than expected economic recovery in Japan. Strong demand is behind rising prices for oil and other commodities and markets appear to be handling this well,” said Director-General Supachai Panitchpakdi.

The figures are in the WTO’s latest annual report on International Trade Statistics, parts of which are available on the WTO website from today (25 October 2004). The entire report, with comprehensive data on international trade flows in the recent period up to 2003, will be available in November on the website and in printed form.

The statistics show that world merchandise trade increased in nominal terms by 16% to $7.3 trillion in 2003. In real terms, merchandise trade grew by 4.5% in 2003, compared with 3% in 2002 and a decline in 2001. Trade in commercial services grew by 13% to $1.8 trillion in nominal terms

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Key features of trade performance in 2003 include the following:

The further recovery of world trade in 2003 was sustained by stronger economic activity in manufacturing and mining, and a continued strong expansion in agriculture. Merchandise trade again expanded faster than output.

Commodity price developments and exchange rate adjustments left their mark on international trade flows measured in dollar terms. The direction of exchange rate movements has generally been considered helpful for correcting prevailing imbalances. However, the depreciation of the US dollar has not been sufficient to stop the rise in the US current account deficit. And although the continued rise in the United States trade deficit helped to sustain output in other regions, it is worrying because any sudden reduction through lower imports could have strong repercussions worldwide (all six regions outside North America recorded a surplus in their goods and services balances in 2003).

The European Union’s enlargement again provided a stimulus for trade flows between Western Europe and the transition economies. For the first time, Western Europe’s merchandise imports from the latter exceeded those originating from North America. More than one half of Western Europe’s merchandise trade deficit with Asia comes from its trade with China.

Asia’s merchandise exports and imports expanded faster than world trade. With its rapidly expanding economy, China has become a major trader. Its surging import demand for oil, copper, soybeans, and many other primary commodities contributed significantly to higher prices. China’s increased purchases of investment goods, semi-manufactured goods and machinery parts has sustained output and exports in many East Asian economies. In 2003, as in the second half of the 1990s, China’s merchandise export growth was twice as high as that of world trade. Although China’s imports grew faster than exports in 2003, the country still recorded a significant trade surplus.

Higher commodity prices, in particular for fuels, contributed greatly to the rebound of merchandise exports of oil-exporting countries in the Middle East, Africa and the transition economies.

After twelve years of successive deficits, Latin America registered a surplus in its merchandise trade. China has become an important destination for Latin American exports.

Trade in office and telecommunications equipment lags well behind the growth of world merchandise trade, after being the most dynamic product category traded throughout the 1990s. In 2003, office and telecommunications equipment is the only product group that did not regain or exceed the previous export peak in 2000.

Trade growth in chemicals started to accelerate after 2000 due to a surge in pharmaceutical products. In 2003, world exports of chemicals rose by 19% to $794 billion. Trade in chemicals accounted for nearly 15% of global trade in manufactured goods, amounting to three times more than trade in clothing. It exceeded the value of world exports of automotive products by 10%.