Export downturn to be biggest contraction since World War II

On March 25, World Trade Organization economists predicted that the collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9 percent in volume terms, the biggest such contraction since the Second World War.

In its annual assessment of global trade, the WTO said the contraction in developed countries will be particularly severe, with exports falling by 10 percent this year. In developing countries, which are far more dependent on trade for growth, exports will shrink by some 2 percent-3 percent in 2009.

Signs of the sharp deterioration in trade were evident in the latter part of 2008 as demand sagged and production slowed. Although world trade grew by 2 percent in volume terms for the whole of 2008, it tapered off in the last six months and was well down on the 6 percent volume increase posted in 2007.

“For the last 30 years, trade has been an ever-increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect-as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries,” said Director-General Pascal Lamy.

WTO economists warn that the extraordinary turbulence of world markets in recent months and the continued uncertainty about the near-term trajectory of the global economy makes gauging the preliminary 2008 trade estimates and 2009 projections unusually difficult.

(Theo The Journal of Commerce Online)