The Hindu : Gloomy prospects for world trade

Online edition of India's National Newspaper
Thursday, Apr 24, 2003

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Business

Gloomy prospects for world trade

By C. Rammanohar Reddy

The prospects for world trade in 2003 do not look very bright with the World Trade Organisation forecasting growth, in volume terms, of just 3 per cent this year. According to the WTO's trade forecasts which were released in Geneva today, this would be more or less the same rate of growth as that recorded in 2002. The recent and ongoing slump in world trade (though 2002 saw a recovery from the contraction in 2001) marks a significant change from the 1990s when trade volume growth increased by as much as 6.7 per cent a year.

The WTO is circumspect about even its forecast of a modest growth in 2003, pointing to both the fall-out of SARS and the uncertainties following the invasion of Iraq. In a significant warning, the WTO even goes as far as to say that the war in Iraq could have impacts other than on oil supplies and prices. "Military intervention could have the effect of testing the whole system of international institutions and agreements, which have until now provided the basis for global governance, ushering in a new and more uncertain era in international relations. The erosion of confidence in global institutions could encourage the creation of like-minded blocs and inward-looking policies,'' according to the WTO. The multilateral trade system is, in short, in for a hard time.

In value terms, world trade in 2002 was over $7,700 billion. Merchandise trade amounted to $6,240 billion and of services $1,540 billion. This was a growth of 4 and 5 per cent respectively. But with the dollar falling in value in 2002, the increase in volume terms was about half these rates of expansion in value terms.

The WTO's forecasts are decidedly on the more pessimistic side, compared to that of the International Monetary Fund. The World Economic Outlook of the WEO, just earlier this month, forecast that world trade growth, in volume terms, would show a sharp acceleration from 2.9 per cent in 2002 to 4.3 per cent in 2003 and expand even faster, at 6.1 per cent, in 2003. The IMF prediction is of trade in merchandise and services, while that of the WTO is of only merchandise. But the WEO forecasts have, in recent years, consistently turned out to be over-estimates. Just six months ago the IMF was suggesting world trade would expand by over 6 per cent in 2003, a forecast that it has had to now revise downwards by nearly two percentage points.

Within the overall poor rates of expansion, the global pattern of trade growth has, however, been a mixed one. In general, North America (including the U.S.) registered poor growth rates (in some cases even negative rates of expansion) of trade in 2002, west Europe and Japan were slightly better. On the other hand, the developing countries as a group recorded an expansion of 12 per cent in the volume of merchandise trade last year and the transition economies a figure of 9 per cent.

The large trading country recording the fastest growth in trade in 2002 was China. The Chinese economy's exports of merchandise (excluding that of Hong Kong) increased by 22 per cent in 2002, and of imports by 18 per cent. India, however, was not far behind. According to the WTO's statistics, India's export growth was the second fastest in the league of the top 30 exporters in the world — recording an increase of 15 per cent. Incidentally, India now has a 0.8 per cent share in global merchandise exports and an equal share in imports. Its share in services trade, according to the WTO statistics, is higher. The WTO data are, of course, based on official national statistics. And the surprising surge in India's exports in the second half of 2002-03 has still not been fully explained.

It is widely believed that the appreciation of the rupee has prompted a considerable amount of an illegal "over-invoicing'' of exports (as some exporters have sought to bring back the money that had been illegally kept abroad earlier) which is showing up in the official data as a rapid growth in exports during 2002-03.

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