According to the United Nations Conference on Trade and Development (UNCTAD), global trade is predicted to shrink by approximately 5 percent to around $30.7 trillion this year. This decline is attributed to underperforming exports from developing countries and geopolitical factors. The Geneva-based organization, in its Global Trade Update, stated that this contraction represents a reduction of about $1.5 trillion compared to the previous year’s record high of approximately $32 trillion in 2022.
The most severely affected sector will be trade in goods, which is expected to decrease by 8 percent or around $2 trillion, as projected by UNCTAD. On the other hand, services trade is anticipated to grow by approximately 7 percent, equivalent to $500 billion.
The U.N. agency stated, “Global trade has been experiencing negative growth since mid-2022, primarily driven by a significant decline in goods trade, which continued to contract during the first three quarters of 2023.” In contrast, trade in services has demonstrated greater resilience, maintaining positive growth throughout the same period.
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Anticipated shift
According to the latest report by UNCTAD, it is projected that there will be a shift in the fourth quarter of 2023, characterized by a slight uptick in goods trade and a decline in services trade.
UNCTAD has observed a lackluster performance in exports from developing countries, with a notable decrease in South-South trade (trade between developing countries), while trade with East Asia has remained below average.
UNCTAD also highlights the growing influence of geopolitical trends on global trade, particularly the diminishing interdependence between China and the United States (U.S.), the two largest economies in the world. The organization emphasizes that key bilateral trade patterns are being shaped significantly by factors such as the conflict in Ukraine, the sanctions imposed on the Russian Federation, and the de-risking in the trade relationship between the United States and China.
Indirect impact on the trade dynamics
These factors have not only direct implications on the economies directly involved, but they also have an indirect impact on the trade dynamics of other economies, the report noted.
UNCTAD has identified that several economies are facing hindrances in their economic activity due to high interest rates.
This view is reinforced by the most recent purchasing managers’ index readings for the U.S. and China, which indicate a subdued outlook for industrial output in the coming months.
Furthermore, UNCTAD highlighted that despite some economic indicators suggesting potential improvements, ongoing geopolitical tensions, elevated levels of debt, and widespread economic fragility are expected to exert negative influences on global trade patterns.
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