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WTO: 2007 PRESS RELEASES Press/472 Risks lie ahead following stronger trade in 2006, WTO reports Risks in financial and property markets and large trade imbalances in goods and services mean increased uncertainty in 2007 and raise the prospect of weaker economic and trade expansion in the coming year, according to WTO economists. “A successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty,” Director-General Pascal Lamy said. “An agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today’s dynamic global marketplace.” |
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Last year’s press release (11 April 2006) |
In their preliminary assessment of trade in 2006 and prospects for the coming year, they said the consensus among forecasters of around 3% global economic growth in 2007 could slow merchandise trade growth to about 6% compared with 8% in 2006. By contrast, the world economy and trade grew vigorously in 2006, the 8% expansion in merchandise trade being the second highest since 2000. Growth in gross domestic product (GDP) — a measure of the size of the economy — was stronger than expected in Europe and Japan. The Chinese and Indian economies continued to record high growth. Least-developed countries’ trade grew by about 30%, fuelled by higher prices for petroleum and other primary commodities. They and developing countries as a whole saw their shares of world merchandise trade reach record proportions. And for some of the smaller suppliers, fear of a setback in textiles and clothing in the face of competition from China proved unfounded in 2006. “The strong performance of 2006 is welcome, particularly the gains made by developing and least-developed countries,” WTO Director-General Pascal Lamy said. “But this has to be consolidated. The uncertainties that lie ahead are a warning for us not to lose sight of the need to continue to reform the world economy.” “The best contribution the WTO can make is to keep strengthening the multilateral trading system. One of the unsung achievements of the system is its stabilizing effect on world trade and the global economy. A successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty. An agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today’s dynamic global marketplace.” Overview of major trade developments in 2006 The overall picture in 2006 was of trade expanding in real terms (i.e. ignoring price changes), faster than output by a large margin. The dollar value of world merchandise exports increased by 15% to $11.76 trillion in 2006. Commercial services exports were up by an estimated 11% and reached $2.71 trillion in 2006. Price changes affected the nominal merchandise trade growth rates of countries and whole regions. The annual average prices for fuels and metals rose sharply, benefiting the export earnings of fuels and metal exporters. The four regions with the highest share of fuels and other mining products in their merchandise exports (the Middle East, Africa, the Commonwealth of Independent States — CIS — and South and Central America) again recorded the strongest annual export rise in 2006. The United States recorded its best annual merchandise export growth in more than a decade but its trade deficit continued to grow. However, when adjusted for price changes, US merchandise exports expanded faster than world trade and faster than US imports. China’s trade growth continued to outstrip other major traders. China’s merchandise exports grew by 27%. In the second half of 2006, its merchandise exports started to exceed those of the United States, but for the whole year US exports still exceeded those of China. Least-developed countries’ exports rose sharply in 2006 due to much larger values of fuels exports and stronger exports of other primary products and manufactured goods. Developing countries’ share of world merchandise exports reached an all time record of 36%. The 0.9%,share for least-developed countries was also a record, the highest level since 1980, the earliest data kept by the WTO. The picture for textiles and clothing is better for small suppliers with preferences in developed country markets than many had feared following the 2005 elimination of quotas and of the WTO’s Agreement on Textiles and Clothing. As expected, China has enhanced its role as the leading supplier. Low and lower-middle income countries have seen their share of world exports of textiles and clothing increase markedly. The richer developing countries, including the newly-industrializing Asian economies (NICs) and Mexico, lost market share. Some small suppliers also lost shares, but others gained. Overall, in 2006, the least-developed countries increased their shares of developed countries’ textiles imports. The fact that China, India and Bangladesh performed well also means that millions of low-income workers benefited. Details: the state of the world economy and trade in 2006 The year 2006 witnessed robust growth in the world economy and vigorous trade expansion. Global gross domestic production (GDP) growth accelerated to 3.7%, the second best performance since 2000. All major regions recorded GDP growth in excess of population growth. Economic growth in the least-developed countries continued to exceed 6% for the third year in a row. A large part of the stronger global economy is attributable to the recovery in Europe, which turned out to be stronger than expected in early 2006. The United States economy maintained its overall expansion as weaker domestic demand was balanced by a reduction in the external deficit, mainly due to a faster export growth. In Japan somewhat faster economic growth was achieved despite weaker domestic demand reflected in a widening of its external surplus. China and India continued to report outstandingly high economic and trade growth. Strong economic fundamentals in many key economies contributed to stronger investor confidence worldwide. General government deficits decreased in the United States, the European Union and in Japan and inflationary pressures were contained. A high level of global monetary liquidity combined with a low level of real interest rates contributed to a rally on global stock markets. Stock markets in emerging economies again recorded much faster growth than those in developed economies. Increased investor confidence in emerging markets is also reflected in the sharply reduced spread in interest margins between emerging market bonds and those of US government bonds. The more favourable investment climate is also reflected in a sharp rise in global foreign direct investment (FDI) flows in 2006, which approached the record levels of the past. UNCTAD (1) reports that global FDI inflows surged by one-third to $1.23 trillion, the second highest level ever. The high growth of global FDI flows can be attributed partly to increased mergers and acquisitions activity and higher share prices. A high level of total net private capital flows to emerging markets was reported by the Institute of International Finance. (2) A further sign of high global liquidity is the rise in global foreign exchange reserves and the advanced re-payment of external public debt by a number of developing countries. Debt levels, measured by the outstanding debt to GDP ratios, decreased in all developing regions partly due to debt forgiveness. For the heavily indebted poor countries the debt levels in 2006 are estimated to have come down to half the level reported five years ago. (3) The real effective exchange rate of the US dollar continued to depreciate moderately, contributing to the readjustment of the US current account deficit (the trade deficit in goods and services)(4). The exchange rates of the Asian economies with large current account surpluses fared differently in 2006. On an annual average basis, real effective exchange rates appreciated significantly in the case of the Republic of Korea and Singapore and moderately in the case of China. The Japanese Yen, however, continued to depreciate in 2006.(5) High global liquidity and a further steep rise in the price of fuels and nominal interest rates has not so far translated into higher domestic inflation rates. In developed markets consumer price increases averaged between 2% and 3%, and in the developing economies the rate was about 5%. In both developed and developing regions no acceleration in consumer price inflation was observed between 2005 and 2006 (6). However, inflationary pressures can be detected in sectors for which supply is less elastic, such as real estate markets and auction prices for works of art. The strong global macro-economic situation in 2006 provided a favourable framework for the expansion of international trade. In 2006, world merchandise exports grew in real terms (i.e. at constant prices) by 8.0%, compared to 6.5% in the preceding year. A large part of this trade acceleration can be attributed to the marked recovery in Europe’s export and import growth. Higher prices of fuels and metals led to a stagnation in the quantity of mining products traded internationally but the higher export earnings of oil exporters resulted in import growth in excess of the world average. High energy prices also invigorated demand for mining equipment and investment in machinery with high energy efficiency. China’s merchandise trade expansion remained outstandingly strong in 2006. Office and telecom equipment continued to be the mainstay of Chinese export growth but significant gains in world market shares in 2006 could be observed in “traditional” exports such as clothing and “new” products such as iron and steel. Chinese imports again rose faster than global trade but continued to lag behind export growth. Trade prospects for 2007 The marked correction in share prices observed on global stock markets at the end of February 2007 highlighted the increased uncertainty of investors with respect to the short-term prospects of the world economy. The consensus among forecasters favours a moderate deceleration in world economic growth in 2007 (7). The economic fundamentals in the major economies are strong enough to keep global economic growth close to 3% (GDP measured at market exchange rates). US domestic demand slowed markedly in the second half of 2006 and is expected to weaken further in the first half of 2007. Imports of goods and services contracted between the third and fourth quarter (on a seasonally adjusted basis) and should remain subdued in the first half of 2007 (see Chart 1). The slowdown in GDP growth in Europe is expected to be less pronounced than in the United States (and could be avoided in Japan), maintaining developed countries economic growth close to 2.5% in 2007. Demand in the oil importing countries is expected to benefit from on average lower import prices of fuels in 2007. Although endogenous factors have played an increasing role in developing country economic performance over the last decade, the slowdown in industrial markets is likely to contribute to less dynamic growth in the developing world, which is still expected to grow at least twice as fast as the developed markets. The most likely scenario is that GDP growth in 2007 will slow down in all regions, with relatively even growth among the regions in the developed and developing areas. Chart 1: Real GDP and trade growth of United States, 2005-06 back to top
The major risks to this scenario are found in financial market developments, a dramatic downturn in the property markets, and the continued existence of large current account imbalances. The search for high yield investments has led to a rapid expansion of financial instruments (hedge funds, carry trade). Assuming the basic scenario of global economic GDP growth of nearly 3%, global merchandise trade could slow down to about 6% in 2007, or 2 percentage points less than in 2006. This estimate is supported by the results of the Secretariat’s time series forecasting model which predicts a slowdown in the OECD area’s imports of goods and services to 4.5%, a 2.5 percentage point decrease from the rate observed in 2006. The downside risks associated with this trade projection include a stronger than expected correction in highly priced property markets, a pickup in inflation, and risk perceptions that could lead to a further rise of interest rates. Interest rate rises could trigger a correction of stock and bond markets and lower then predicted levels of investment and private consumption. Real merchandise trade developments and output in 2006 The pick up in global economic activity was the major factor in the vigorous expansion of global trade in 2006. Real merchandise export growth is provisionally estimated to have grown by 8.0% in 2006, almost two percentage points faster than in 2005, and well above the average expansion of the last decade (1996-2006). The expansion of real trade exceeded global output growth by more than 4 percentage points (see Chart 2).
Chart 2: Growth in the volume of world merchandise trade and GDP, 1996-06 back to top
In 2006, the variation in regional real trade growth increased even though
economic growth by region differed less than in the preceding year. These
divergent developments can be attributed largely to the terms of trade changes
in favour of fuel-exporting countries and regions. The North American region
comprises two net exporters of fuels and the United States, which is a major net
importer of fuels. The real merchandise exports of the United States rose by
10.5% in 2006, which was the highest growth rate since 1997 and almost two times
faster than its import growth. Energy related petroleum products decreased by
2.5% in volume terms. Weaker domestic demand in the United States, a lower real
effective (i.e. trade weighted) dollar exchange rate, and stronger global demand
growth contributed to this favourable development. Canada’s merchandise exports
slowed down markedly due to the combination of lower US demand and a marked
appreciation of the Canadian dollar since 2002. Mexican merchandise trade
expanded vigorously with both imports and exports up by double digit rates as
its economy recorded its best growth since 2000.
Table 1: GDP and merchandise trade by region, 2004-06
a Includes the Caribbean.
Europe’s real merchandise exports recorded their strongest annual growth since
2000, exceeding import growth (estimated at 7%) but continued to lag behind the
global rate of trade expansion. European countries recorded considerable
variation in their trade performance. Double-digit export growth can be observed
for the countries at its eastern border, ranging from Finland and the Baltic
states in the North to Turkey in the South. All these countries benefited from
further integration with the EU and the strength of import demand from the
Commonwealth of Independent States (CIS) region. Both Germany and the United
Kingdom recorded export and import growth well above the European average, while
real trade growth was sluggish in Italy and Spain and stagnated in France and
Ireland.
Chart 3: Real merchandise trade growth by region, 2006 back to top
Nominal merchandise and commercial services trade developments in 2006 (9) World merchandise exports in dollar value terms were strongly affected by price developments in 2006. Price developments differed widely by sector in the course of the year. According to the IMF commodity price indices, the world export prices of minerals and non-ferrous metals increased by 56%, those of fuels by 20% and those of food and agricultural raw materials by 10%. Export prices of manufactured goods are estimated to have increased by not more than 3% (10).
Chart 4: Export prices of selected primary products, 2005 and 2006 back to top
Price changes for manufactured goods remained less strong than those for
primary products for the third consecutive year. An important element in
the moderate price trends for manufactured goods was the continued
decline in prices for electronic goods, which accounted for more than
one in six dollars of world exports of manufactured goods in 2005. These
shifts in relative prices are explained largely by the different
regional export unit values (prices) which ranged from 4% to 5% for Asia
and Europe to about 18% to 20% for exports of South and Central America,
Africa, the Middle East and the CIS. Information on price trends for
world commercial services trade are not available. However, the price
deflators for US services exports and imports increased between 3% and
4% in 2006, somewhat less rapidly than in the preceding year.
Chart 5: Dollar changes vis-à-vis selected major currencies, 2001-2006 back to top
a Trade weighted currency basket of the Korean won, the Singapore
dollar and Chinese Taipei dollar. World merchandise exports in dollar terms rose by 15.4% to $11.76 trillion. About 40% of this value change can be attributed to inflation. Commercial services exports rose by 11% to $2.71 trillion. The increase in commercial services exports in 2006 was about the same as in the preceding year and for the fourth consecutive year less pronounced than that of merchandise trade. It is uncertain to what extent divergent relative price developments have contributed to the differences in the growth of merchandise and commercial services trade values.
Table 2: World exports of merchandise and commercial services, 2006 back to top
Source: WTO.
Merchandise exports by region in dollar terms have been strongly
affected again by price developments. The four regions with the highest
share of fuels and other mining products in their merchandise exports —
the Middle East (70% in 2005), Africa (65%), the Commonwealth of
Independent States (60%) and South/Central America (37%) again recorded
the strongest annual export increases in 2006. However, as prices of
fuels increased in 2006 less rapidly than in 2005, the sharp rise in the
export values of these regions were in effect smaller than in the
preceding year. The opposite development can be observed for the net
importers of fuels — North America, Europe and Asia reported a faster
export growth in 2006 than in 2005, although the growth in their
shipments remained less strong than that of the fuel exporting regions.
It is clear from the discussion above that trade expansion in 2006 was
very favourable for the developing countries as a group. Their combined
merchandise exports rose by 20%, to $4.27 trillion, and imports rose by
17%. The share of developing countries in world merchandise exports
reached with 36%, an all-time record level. The share of developing
countries in world merchandise imports was 31%, the largest share in
more than a quarter of a century. For the least-developed countries, the
expansion of merchandise exports has been even stronger than for the
developing countries over the last six years, including 2006.
Least-developed countries’ exports are estimated to have increased by
about 30%, to $108 billion in 2006. Their share in world merchandise
exports reached 0.9%, the highest level since 1980 (the first year for
which records are kept). Merchandise imports rose by 17%, which was far
less rapid than merchandise exports, leading the least-developed
countries as a group to record a trade surplus for the first time.
Because of differences in commodity composition, individual country
performance, and relative country size, aggregations such as developing
countries and least-developed countries are increasingly less meaningful
for trade analysis (see Appendix Table 1)
Table 3: World exports of commercial services trade by major category,
2006 back to top
Source: WTO.
Commercial services trade by region is presented in
Appendix Table 2.
Europe and North America, recorded — as in the preceding year — export
and import growth below the world average. Within the European Union
services trade developments by member differed widely: services exports
of France and Finland are reported to have declined, while those of
Luxembourg and Poland expanded by one-quarter or more
(13). The CIS region
reports export and import growth rates of commercial services of about
20%, the fastest growth of all regions.
Appendix Table 1
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