OECD, IMF, And WTO Forecast Sharp Rebound In Trade Flows After 2023 Slump

Global trade growth is set to more than double this year as inflation eases and a robust US economy drives activity, say international bodies.

The OECD, IMF, and WTO predict a strong recovery in global trade flows this year after a slowdown in 2023 caused by high prices, rising interest rates, and weak demand. The OECD forecasts a 2.3% rise in global trade in goods and services this year, increasing to 3.3% in 2025, compared with just 1% growth last year.

Clare Lombardelli, the OECD’s chief economist, attributes much of the increase to a "cyclical recovery" as trade grows alongside the wider economy. China and East Asia are expected to be major contributors. Increased trade has already bolstered growth in some of the EU’s largest economies in the first quarter of 2024. Overall Eurozone growth rose by 0.3% from the previous quarter, the strongest level since Q3 2022. Lombardelli noted positive developments on the trade front.

German exports outpaced forecasts in March, growing 0.9% from the previous month, contributing to a 3.2% rise quarter-on-quarter. Imports also increased, by 0.3% in March and 1.7% in the first quarter.

The IMF's latest World Economic Outlook predicts global trade volumes will grow by 3% in 2024. The WTO expects goods trade to rise by 2.6% in 2024, following a 1.2% decline last year. Neil Shearing, chief economist at Capital Economics, noted "green shoots" in global trade, pointing out that the "manufacturing recession" of 2023 has ended.

Europe, heavily reliant on trade, is seeing a tentative recovery, with southern countries benefiting from a tourism rebound. Spain, for instance, saw a boost from Easter holidays falling in March, with external demand contributing 0.5 percentage points to quarterly growth. Germany and Italy also reported that higher net exports boosted first-quarter growth. French goods exports rose 2.9% in March, reducing the trade deficit to its lowest level in three years.

Salomon Fiedler, an economist at German bank Berenberg, said Eurozone foreign trade rebounded sooner than expected, particularly exports. The World Trade Monitor from the Netherlands Bureau for Economic Policy Analysis reported that goods trade returned to growth in February for the first time in a year, with annual goods trade growth reaching 1.2%.

Despite these positive signs, global trade growth is not expected to return to pre-pandemic levels this year. From 2006 to 2015, goods and services trade volumes grew at an average annual rate of 4.2%, according to the IMF. The OECD, IMF, and WTO have warned of risks to trade from geopolitical tensions, regional conflicts, and economic uncertainty. Governments' focus on national security, self-reliance, and support for domestic companies poses additional challenges.

The WTO notes that trade flows between geopolitically aligned blocs have been growing 4% slower than trade within those blocs since Russia's invasion of Ukraine. Shearing pointed out that the upcoming US election adds to global trade uncertainties, with Donald Trump promising a 10 percentage point tariff increase on all US trading partners if re-elected, with harsher penalties on Chinese imports.