Rising policy uncertainty driving slowdown in global trade: World Bank

Tokyo

GROWTH in world trade continues to slow, the World Bank has warned in a worrying report in which it identifies what is termed a "surge in economic policy uncertainty" as a principal contributor to the further decline in world trade growth seen during 2016.

"Global trade growth continued to be slow for a fifth consecutive year in 2016 which showed the weakest trade performance since the 2008-2009 global financial crisis," the World Bank said in its newly published annual Global Trade Watch.

This is the latest in a series of official reports to flag slowing world trade growth as a sign of potential trouble ahead for the the global economy, and the first such to be published since US President Donald Trump took office last month.

The report makes clear, however, that Mr Trump's protectionist inclinations - US withdrawal from major trade pacts such as the Trans-Pacific Partnership and the threatened imposition of US border taxes - are not the only sources of concern for world trade.

"Policy uncertainty in Europe and the United States had a negative impact on trade by reducing overall global growth," according to the paper's authors, World Bank Group economists Cristina Constantinescu, Aaditya Mattoo and Michele Ruta.

"In a more uncertain environment, firms may choose to postpone investment and export decisions and consumers may cut back spending," the report said. "The threat of unravelling trade agreements may also hurt trade growth by adding to policy uncertainty."

Late last year, the Paris-based Organisation for Economic Co-operation and Development (OECD) said that "the slowdown in world trade growth, if sustained, will have serious consequences for the medium-term growth of productivity and living standards".

Trade policy "has significant potential to reinvigorate trade growth but the political environment for reforms is difficult, with a growing polarisation of OECD electorates into pro and anti-globalisation supporters", the OECD added.

Likewise, the International Monetary Fund in its World Economic Outlook published around the same time noted: "Global trade growth has decelerated significantly in recent years.

"After its sharp collapse and rebound in the aftermath of the global financial crisis, the volume of world trade in goods and services has grown by just over 3 per cent a year since 2012 - less than half the average rate during the previous three decades."

The latest World Bank report says that "preliminary data suggest that world merchandise trade grew by a little more than one per cent in 2016 compared to 2 per cent in 2015 and 2.7 per cent in 2014.

"While in previous years the sluggishness in trade growth had been concentrated in either high-income or developing countries, the weak trade growth seen in 2016 was characteristic of both types of economies."

This latest report by the World Bank analysed trends in 18 countries over 30 years and found that the increase in uncertainty in 2016 may have reduced trade growth by 0.6 percentage points, which accounts for about 75 per cent of the difference between trade growth rates in 2015 and 2016.

The document also offers what it says is "new evidence linking slowing trade growth to slowing productivity growth". Sluggish trade, it suggests, "is reflected in the stagnation of global value chains, which diminished the scope for productivity growth through a more-efficient international division of labour and diffusion of technologies.

"We are witnessing a decline in the growth of trade as well as productivity, and the slowing expansion of global value chains can help to explain both."

On a somewhat brighter note, the World Bank report added that" the growth of services trade continued to be relatively resilient and recovered slightly following a decline in 2015".

Towards the end of last year, some economists had detected what they said were signs of an upturn in world trade, pointing to the possibility of higher growth in the global economy. But this was before Mr Trump took office and unleashed his assault on various tarde pacts.

Signs of a trade upturn were detected especially in the cases of Japan and Singapore.

"We usually think of Singapore and Japan as the harbingers of global trade," head of the IMF's Asia and Pacific department Changyong Rhee told The Business Times earlier this month. But "the question is whether this trend will be reversed now", he added.