QNB’s weekly report revealed that international trade is expected to face pressure in light of the slowdown in the global economy, the increase in trade protectionism, and geopolitical tensions. We expect trade growth in volume terms to be less than 2% this year, and to remain weaker than the long-term average over the coming years.
The report added that international trade is a fundamental pillar of the global economy, and its performance provides clues about current economic conditions and long-term growth prospects. After a temporary collapse in global trade volumes in 2020 due to the shock of the COVID-19 pandemic, a strong economic recovery has dispelled fears of long-term negative impacts on trade from disruptions in global supply chains. Indeed, trade was an important factor contributing to the global economic recovery after the pandemic.
However, 2022 witnessed a sharp slowdown in business activity due to the challenging environment associated with slower growth and higher inflation.
In our opinion, there are three factors that will influence the growth of trade volumes in the future.
First, in the short term, international commodity trade is slowing down due to cyclical dynamics. In terms of volume, trade increased by 2.7% last year, having eased significantly from the post-pandemic boom in 2021. The focus on volumes, rather than values, is important given that large fluctuations in commodity prices can skew metrics, as they have. during the year 2022.
There were several negative factors in 2022, including rising commodity prices, rising inflation that eroded real income and import demand, overall global economic weakness, and pandemic-related restrictions in China. It should be noted that China’s exports, a major contributor to the international trade system, grew by 7% in terms of value, driven by price inflation, while the volume of exports remained unchanged.
Second, protectionist policies continue to spread globally. The increase in protectionism has become noticeable in the statistics related to trade policies around the world. The number of trade restrictions imposed on goods increased from levels of less than 750 annually before 2019 to more than 1700 annually in 2021 and 2022 against the background of the pandemic and the Russian-Ukrainian conflict.
The report shows that the United States provides an example of these policies implemented by major economies on a large scale, as it enacted the law “creating beneficial incentives for the production of semiconductors,” as well as the law “reducing inflation.” These programs aim to direct billions of dollars through tax credits and subsidies over the next ten years to promote the domestic semiconductor industry, research and development, and commercialization of advanced technologies, as well as clean energy infrastructure. Similarly, Europe and China have taken measures to replace imported technology with domestic alternatives in order to reduce dependence on geopolitical competitors and enhance competitiveness.
Third, ongoing and escalating geopolitical tensions are shifting global supply chains and are an indicator of future trade developments. This is important given that international trade flows are determined, to a large extent, by past investments in production capacities across countries. Therefore, current developments in FDI provide information on future trends in trade. Total global foreign direct investment has been less than 2% of global GDP in the past three years, the lowest level since the 1990s. Moreover, FDI inflows are increasingly driven by so-called “friend support” rather than business considerations.
