Trade slows in Q4, WTO says; auto tariffs, Brexit are 2019 risks

GENEVA: World trade shrank by 0.3 per cent in the fourth quarter of 2018 and is likely to grow by 2.6 per cent this year, slower than 3.0 per cent growth in 2018 and below a previous forecast of 3.7 per cent, the World Trade Organization said on Tuesday.

In its annual forecast, the WTO said trade had been weighed down by new tariffs and retaliatory measures, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries. It forecast in September that 2018 growth would be 3.9 per cent, down from 4.6 per cent in 2017.

WTO Director-General Roberto Azevedo told a news conference that the lower forecast was no surprise, given the trade tensions between the United States and China.

WTO chief economist Robert Koopman said worse may be to come, with an even bigger impact if US President Donald Trump goes ahead with a plan to impose high tariffs on global imports of cars later this year.

“U.S.-China trade is about 3 per cent of global trade. Automobile trade globally is about 8 per cent of global trade. So you can imagine that the impact of automobile tariffs is going to be bigger than the impact of the U.S.-China trade conflict. “I think it’s pretty clear that any automobile tariff would likely have bigger knock-on effects through the global economy than what we see from the U.S.-China conflict.”

The WTO did not make a specific prediction about the impact of Brexit, but Koopman said in the worst case it would help push global trade growth down to the bottom end of the WTO’s forecast range in 2019, 1.3 to 4.0 per cent.

“The UK’s own analysis suggests that ‘no deal’ or ‘hard Brexit’ would shave 7.6 per cent off British GDP. That would be a big number. It would force our numbers down to that lower part of our range,” Koopman said.

“If we end up in the fall with a revision, my guess is the likelihood of a revision is that it’s downward, based on any number of factors from Brexit to no resolution in the U.S.-China trade conflict, and other trade conflicts going on.”

Although the volume of global trade grew only slowly in 2018, the dollar value rose 10 per cent to $19.48 trillion, partly because oil prices rose 20 per cent, the WTO said.

The value of commercial services trade grew by 8 per cent to $5.80 trillion in 2018, driven by strong import growth in Asia. Goods trade volumes are expected to grow more strongly in developing economies this year, with 3.4 per cent growth in exports compared with 2.1 per cent in developed economies. Meanwhile a rebound in commodities prices and investment is poised to extend in coming months as the sector gets its traditional boost during the final stages of the global economic cycle along with other drivers.

While some investors worry about a possible recession, commodities are due to benefit from an expected US-China trade deal, tightening oil supply and potential short-covering in beaten-down US grain futures. The 19-commodity Thomson Reuters/Core Commodity CRB Index, which has rebounded 10 per cent from an 18-month low touched at the end of last year, should also get further support from easier monetary policy that has lifted all financial markets, analysts and traders said.

Commodities along with other financial markets have been buoyed after the US Federal Reserve this month confirmed its three-year drive to tighten monetary policy was at an end.

The dovish change from the Fed and growing stimulus in top commodities consumer China would extend the current positive economic cycle and support commodity prices, JPMorgan said in a note. “Late cycles are typically marked by outperformance of commodities,” JPMorgan analyst Dominic O’Kane said.

The rise in commodities so far has been partly fuelled by hopes for an agreement to end a trade war between Washington and Beijing, helping to spur $2.1 billion of flows so far this year into commodity index funds and exchange-traded funds, data compiled by Citi showed. Commodity assets under management have climbed to $407 billion, breaching $400 billion for the first time since October, Citi said, based on data through March 5. Although the energy complex has recovered strongly this year, positioning in crude oil is not overstretched, analysts said.

Reuters