Global trade to lose $1.5tn this year on export underperformance and geopolitical issues

Trends such as the declining interdependence between China and the US have a growing impact, Unctad says

Global trade in goods will be hit the hardest as it is projected to decline by 8 per cent, or about $2 trillion, Unctad said. AFP

Global trade is set to contract by 5 per cent to about $30.7 trillion this year due to underperforming exports from developing nations and geopolitical factors, the UN Conference on Trade and Development has said.

It will be a contraction of about $1.5 trillion from a record high of about $32 trillion in 2022, the Geneva-based body said in its Global Trade Update.

Trade in goods will be the hardest-hit as it is projected to decline by 8 per cent, or about $2 trillion, Unctad said. Services trade is expected to gain about 7 per cent, or $500 billion.

“Global trade has experienced negative growth since mid-2022, primarily driven by a substantial decline in goods trade, which continued to contract in the first three quarters of 2023,” the UN agency said.

“In contrast, trade in services has displayed more resilience and its growth remained positive throughout the same period.”

“Unctad nowcast foresees a shift in the fourth quarter of 2023, with an anticipated small increase in goods trade and a decline in services trade.”

Exports from developing countries have underperformed, with South-South trade – between developing countries – sharply decreasing and East Asia trade remaining below average, it said.

Geopolitical trends, including declining interdependence between China and the US, the world's two biggest economies, are having an increasing impact on global trade, Unctad said.

“The war in Ukraine, the sanctions on the Russian Federation and the de-risking in the US-China trade relationship are playing a significant role in shaping key bilateral trade trends,” it said.

“These factors not only impact the economies directly involved but also indirectly influence [the] trade dynamics of other economies.”

Economic activity is being hindered by high interest rates in several economies, according to Unctad.

The view is supported by the latest purchasing managers’ index readings for the US and China, which suggest a subdued outlook for industrial output in the coming months.

“While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt and widespread economic fragility are anticipated to exert negative influences on global trade patterns,” it said.

Trade is a critical component of the global economy as it allows nations to expand their markets and access goods and services that may not be available domestically, thus allowing more competitive and cheaper pricing.

In October, trade ministers from the Group of Seven advanced industrial economies pledged to work together to ensure smooth supply chains for essentials such as food and energy amid global geopolitical and economic uncertainty.

The officials agreed that the collaboration with international partners beyond the G7 and co-operation with the private sector were essential for supply chain resilience.

The International Monetary Fund said nations “are almost always better off when they buy and sell from one another”.

Unctad projects world economic growth to decelerate to 2.4 per cent this year, from 3 per cent in 2022, as deepening inequalities, mounting debt and an uneven post-Covid recovery take hold.

This trend would spill over into 2024, with the outlook for global trade remaining “highly uncertain and generally pessimistic”, the UN body said, with substantial disparities expected to persist among countries and regions in terms of anticipated economic forecasts.

The volatility in commodity prices also adds to the uncertainty, with regional conflicts and lingering geopolitical tension expected to further dampen sentiment.

“Additionally, the increasing importance of securing critical minerals for the energy transition is expected to affect prices and further contribute to market volatility in these commodities,” the report said.

Global trade is also being influenced by the way supply chains respond to shifts in trade policy and geopolitical tensions, with notable impacts observed in supply linkages between China and the US, it said.

“Companies from other regions, particularly in East Asian economies and Mexico, have had opportunities to become more integrated into the supply chains affected by geopolitical concerns,” Unctad said.