WTO Cuts Global Trade Forecast

By Olivia Le Poidevin and Philip Blenkinsop

GENEVA (Reuters) – The World Trade Organization (WTO) has significantly reduced its forecast for global merchandise trade growth, predicting a decline instead due to escalating U.S. tariffs and spillover effects from trade disputes, notably the ongoing tensions between the U.S. and China.

Trade Forecast Adjustment

The WTO now expects trade in goods to fall by 0.2% this year, down from an earlier forecast of 3.0% growth anticipated in October. This adjustment stems from measures effective at the start of the week.

WTO Director General Ngozi Okonjo-Iweala expressed deep concerns over the contraction in global merchandise trade growth, emphasizing its potential ramifications for the global economy.

Impact of Tariffs

U.S. tariffs imposed by former President Donald Trump on steel, cars, and a variety of imports, have raised fears of a significant reduction in global trade. The WTO stated that if full tariffs were reinstated, it could lead to a further 0.6% decline in trade growth, alongside a 0.8 percentage point drop attributed to spillover effects, potentially resulting in a total decline of 1.5% — the sharpest since 2020.

Economic Decoupling

The WTO director general voiced concerns about a decoupling of the U.S. and Chinese economies, predicting a staggering 81% drop in merchandise trade between the two nations, which could have been even higher without certain product exemptions, such as smartphones. This fragmentation might lead to a long-term global GDP shrinkage of 7%.

Trade Policy Uncertainty

The WTO has indicated that the unpredictable nature of recent trade policies necessitates a cautious interpretation of future forecasts, with some experts warning that estimating a credible baseline scenario is nearly impossible under the current circumstances.

In addition, the U.N. Trade and Development agency indicated a potential slowdown in global economic growth to 2.3% as trade tensions persist.

As a result, countries currently dependent on U.S. markets may find new opportunities in sectors such as textiles and electrical equipment, while services trade is expected to suffer due to weakened demand from goods trade and increased uncertainty affecting travel and investment services.

The WTO anticipates moderate recovery in commercial services trade, projecting growth of 4.0% in 2025 and 4.1% in 2026, which are below earlier baseline estimates.

The downturn follows a strong 2024, during which world merchandise trade grew by 2.9%, and services trade increased by 6.8%.