WTO barometer shows global trade improved in Q2 2023

The World Trade Organisation's latest Trade Barometer has revealed a glimmer of hope for global goods trade as it showed signs of a turnaround in the second quarter of 2023. However, Nee Coleman, a Senior Economist at the WTO, warns that further upward momentum in the following quarters may be limited due to weak export orders. The bounce back in global trade comes after a severe slump witnessed in the fourth quarter of the previous year and the first quarter of the current year. Factors such as spiking energy prices following the Ukraine invasion and tightening interest rates in Western countries contributed significantly to the downturn. These conditions led to reduced incomes, spending, demand, and subsequently, demand for imports. The easing of some of these factors, such as the decline in energy prices and a slight decrease in inflation, has helped trigger a modest rebound in global trade. However, the barometer still remains below the baseline of 100, indicating that the growth is slightly below trend. Despite showing improvement from the previous reading of 95.6, the current state of global trade does not reflect a robust rebound, raising scepticism about potential growth going forward. One of the driving factors behind the slight turnaround in Q2 has been the performance of the automotive sector, particularly in countries like China. While China has exhibited strength in electric vehicles, its overall export growth has been modest, with certain sectors experiencing weakness. The automotive industry has been a bright spot for countries like Japan, where surging exports of automotive products have contributed to stronger than expected GDP growth in the first half of the year. However, regions like Northern Europe, including Germany, are facing challenges due to a slowdown in the automotive sector and struggles to adapt to technological changes. Despite automotive trade showing some positive trends, other sectors like electronics continue to lag below trend. The electronics component of the trade barometer remains weak compared to other sectors. This weakness can be attributed to a saturation in demand for electronics following a period of high investment during the pandemic for remote work and home entertainment. Moving forward, the momentum of global trade will heavily depend on the performance of export orders. The strength of new export orders is a crucial indicator as it indicates future demand and production levels. Weakness in this area could hinder the growth prospects for the coming months. Regional developments also play a significant role in shaping the trajectory of global trade. Currently, there is a broad weakness across regions, including Asia, Europe, and Africa. Weak demand for manufactured goods, other than the automotive sector, could lead to continued sluggishness in global trade, especially in Africa's export of natural resources. While there has been a weak but steady recovery so far, the future remains uncertain with lingering question marks about the resilience of global trade amidst prevailing challenges.