The impressive trade performance during 2010 helped in no small way in checking the global economy's slide into recession. Highlighting this and certain related aspects, the World Trade Organisation in a recent report has cautioned that expectations of trade growth in 2011 ought to be more subdued. After the record-breaking 14.5 per cent surge in terms of volume in 2010, the expansion in world trade is unlikely to exceed 6.5 per cent during 2011. In 2010, trade was essentially bouncing back from the sharp drop of almost 12 per cent during the previous year. The 14.5 per cent increase was the highest since 1950 and was buoyed by a 3.6 per cent growth in the global output. Such a performance returned trade to the 2008 peak. The WTO's muted expectations are rooted in the realisation that the “hangover from the financial crisis is still with us.” High unemployment in the developed economies and sharp belt-tightening in Europe have fuelled protectionist pressures. The Doha development round shows no signs of moving forward. The earthquake, the tsunami, and the nuclear disaster in Japan have added to the uncertainty surrounding the trade outlook while the spiralling prices of commodities, especially petroleum, and the continuing unrest in major oil exporting countries have added to the risk factors.

But that is not all, according to the WTO. The factors that contributed to the unusually large drop in world trade in 2009 may have also boosted the rebound in 2010. The proliferation of global supply chains is one factor. The product composition of trade compared with output is another. Global supply chains cause goods to move across national boundaries several times during the production process, thereby increasing measured trade flows. Certain goods such as consumer durables and industrial machinery, which were severely affected during the downturn, have a larger share in world trade than in global GDP. Consequently, while they exaggerated the magnitude of trade slump relative to the GDP in 2009, they had a positive effect the next year. The trade recovery needs to be sustained by sound policy measures. Exhorting its members to be vigilant against protectionist forces, the WTO has said that salvation lies in opening, not closing, markets.

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