Global trade to drop 5% this year amid geopolitical headwinds

Global trade will decline in 2023 by about 5% from last year's record as high borrowing costs weigh on economies, US-China tensions redirect supply chains and more policies restricting cross-border commerce emerge, a UN agency said.

The value of goods and services trade will reach $30.7 trillion compared with $32.2 trillion in 2022, according to the Geneva-based United Nations Conference on Trade and Development. A $2 trillion, or 8%, slump in merchandise trade is the main reason. Services trade this year will increase by $500 billion, or about 7%, from a year ago, UNCTAD said in a report Monday.

Lower costs for goods affected by high inflation a year ago is also a reason for the decline. "Even though the value of traded goods decreased in 2023, the slightly positive trend in the volume of international trade suggests a resilient global demand for imported products," the report said.

UNCTAD noted how countries aligned geopolitically are trading more with each other while those in disagreement are trading less bilaterally. That divergence among several issues clouding the outlook for next year, the agency said.

"The forecast for global trade remains highly uncertain and generally pessimistic," the report said. "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."

Global economy may avoid recession in 2024

A number of big banks expect global growth to slow further in 2024, squeezed by elevated interest rates, higher energy prices and uncertainties in the world's two largest economies, although they see less chances of a recession.

The global economy is forecast to grow 2.9% this year, a Reuters poll of economists showed, and is expected to slow to 2.6% for the coming year.

While the global economy may avoid a recession, Europe and the United Kingdom may still see its milder form, according to the poll.

A soft landing for the United States is still on the cards, although uncertainty around the Federal Reserve's monetary tightening path clouds the outlook. China's growth is expected to weaken, as global companies look for alternative locations to reduce their reliance on the country for services such as manufacturing.

Disclaimer: This article first appeared on Bloomberg, and is published by a special syndication arrangement.