Global trade shrinks in final quarter of 2018 as trade wars drag on global economy

Global trade shrank at the end of 2018 as trade tensions and increased economic uncertainty took their toll, the World Trade Organisation (WTO) revealed today.

The WTO also said that these problems will stick around, predicting in its annual forecast that world merchandise trade is likely to grow by 2.6 per cent in 2019, much lower than a previous prediction of 3.7 per cent.

Global trade shrank by 0.3 percent in the final quarter of 2018, the WTO said, due to new tariffs and retaliatory measures, weaker economic growth, volatility in financial markets and tighter monetary conditions in developed countries.

The organisation now estimates that global trade grew by three per cent in 2018, down from its September forecast of 3.9 per cent.

The news came amid fears of a slowdown in the global economy. Consensus estimates have world GDP growth slowing from 2.9 per cent in 2018 to 2.6 per cent in both 2019 and 2020.

Trade only grew slightly faster than output in 2018, and this relative weakness is expected to extend into at least 2019, the WTO said. This was partly due to slower growth in the European Union, which has a larger share in world trade than in world GDP.

WTO director-general Roberto Azevedo said: "With trade tensions running high, no one should be surprised by this outlook. Trade cannot play its full role in driving growth when we see such high levels of uncertainty.”

Criticising trade wars, he said: “If we forget the fundamental importance of the rules-based trading system we would risk weakening it, which would be an historic mistake with repercussions for jobs, growth and stability around the world.”

The WTO said: “The effects of Brexit will depend on the nature of any agreement that might be reached between the United Kingdom and the European Union, with impacts mostly confined to these economies.”

“Lower investment in the UK is likely in most foreseeable Brexit scenarios, which would tend to reduce productive capacity over time.”

Azevedo said: “It is increasingly urgent that we resolve tensions and focus on charting a positive path forward for global trade which responds to the real challenges in today's economy – such as the technological revolution and the imperative of creating jobs and boosting development.”