These are not easy times. We know that in 2009, growth of real world GDP was negative, estimated at -2.2 per cent. Furthermore, the global unemployment rate reached its highest level ever, with the International Labour Organization estimating the number of jobless worldwide at over 200 million. The adverse impact of the recent financial crisis on the world economy in terms of output and employment is undeniable
World trade has also been a casualty of this crisis, contracting in volume terms by around 12 per cent in 2009 the sharpest decline since the end of the Second World War. The main explanation for this freefall in trade has been the simultaneous reduction in aggregate demand across all major world economies. The drying up of trade finance during this period has also been a contributing factor. To a much lesser degree, trade has been adversely affected by some instances of increased tariffs and domestic subsidies, new non-tariff measures and more anti-dumping actions.
We started last year with a collapse in trade, a drying up of trade finance, concerns that donors would reduce funding for "Aid for Trade", and worries that protectionism would kick in. And yet one year on from the onset of the crisis, we see that, to this point at least, the multilateral trading system has proven its sturdiness as a bulwark against runaway protectionism.
In most developed economies, including the EU.stimulus packages have been instrumental in preventing further deterioration in output while preparing the path to recovery. The jury is still out though on whether some of the measures introduced to stimulate economies contain provisions that favour domestic goods and services at the expense of imports.
But the positive impact of national stimulus packages is fleeting and worries are mounting over the huge budget deficits rung up by many governments. Economies urgently need other sources of growth -- sustainable engines of growth which will not add to our already seriously indebted economies. This is where trade can be an important part of the story, both in the long-run and in the short to medium-term.
Pascal Lamy is Director General, WTO
Based on the speech by Pascal Lamy to the European Policy Centre in Brussels on 24 February 2010
Originally published in The Stitch Times: April 2010