'WTO sees 9% global trade decline in 2009 as recession strikes'

According to the words of Director-General Pascal Lamy, "trade can prove to be a potent tool in lifting the world from the economic doldrums. In London G20 summit, leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective".

As per the forecast of WTO economists, the collapse in global demand brought on by the biggest economic downturn in decades which will drive exports down by roughly 9% in volume terms in 2009, the biggest such contraction since the Second World War. The contraction in developed countries will be particularly severe with exports falling by 10%. In developed countries (which are considered to be far more dependent on trade for growth), exports will be shrink by 2% to 3%. Economic contraction in most of the industrial world and steep export declines already posted in the early months of this year by most major economies-particularly those in Asia-makes for an unusually bleak 2009 trade assessment, said the WTO in its annual Assessment of global trade.

Signs of the sharp deterioration in trade were evident in the latter part of 2008 as demand sagged and production slowed. Although world trade grew by 2% in volume terms for the whole of 2008 it tapered off in the last six months and was well down on the 6% volume increase posted in 2007.

"For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect- as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries," said Director-General Pascal Lamy. He further said that as a consequence, many thousands of trade related jobs are being lost. Governments should avoid making this bad situation worse by reverting to protectionist measures, which in reality protect no nation and threaten more number of job losses. We are carefully monitoring the trade policy developments. He commented on the usage of protectionist measures, which is on rise, and further risk is increasing of such measures that are choking off trade as an engine of recovery. The need of an hour is to be vigilant because the restrict imports only leads your partner to follow suit that hit exports. Trade can prove to be a patent as well as potential tool in lifting the world from economic doldrums.

Financial crisis sparks downturn

Following the dramatic worsening of the financial crisis since September of last year, real global output growth slowed to 1.7%, compared to 3.5% in 2007, and is likely to fall by between 1% and 2% in 2009. This is the first decline in total world production since the 1930s, and its impact is magnified in trade. But WTO economists warn that the extraordinary turbulence of world markets in recent months and the continued uncertainty about the near-term trajectory of the global economy makes gauging the preliminary 2008 trade estimates and 2009 projections unusually difficult.

The WTO's preliminary estimate of 2% growth in world trade volume for 2008 is substantially lower than the forecast of 4.5% growth issued a year ago. However, last year's outlook did identify significant downside risks related to developments in financial markets. A large part of the explanation for the over-estimation was the unexpected and very sharp drop in global production in the fourth quarter of 2008.

Trade prospects for 2009

If this basic scenario holds, world merchandise trade is likely to fall some 9% in volume terms in 2009 (i.e., where price changes have been removed from the calculation), with developed economy exports falling by some 10% on average and developing country exports shrinking by 2-3%.

Trade prospects for 2009 are heavily conditioned by the financial crisis that began almost two years ago in the United States. The crisis intensified dramatically following the collapse of the Wall Street investment bank Lehman Brothers in September of last year, and the government-led rescue of a number of financial institutions in the United States and elsewhere. Turmoil in the financial sector and acute credit shortages spread inexorably to the real sector. Declining asset prices, faltering demand and falling production translated into dramatically reduced and in some cases negative production and trade growth in many countries. Trade has also been affected adversely by a sharp shrinkage in credit to finance imports and exports.