WTO NEWS: SPEECHES — DG PASCAL LAMY

International Monetary and Financial Committee (IMFC)

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More favourable macro-economic prospects foreseen by the Fund in 2010 will both co-exist with, and translate into, improved global trade flows, after the “annus horribilis” experienced in 2009: world trade fell by 12% in real terms, beyond our -10% forecast. Had we needed a confirmation that global trade was a, if not the, channel of transmission of demand shocks worldwide, 2009 has provided that evidence of inter-dependence of economies on all continents.

We have been looking at the reasons why the fall in global trade had been so pronounced relative to GDP (-12% against -2.3%). Among “structural” factors are the disproportionate share of some manufactures in total trade, such as consumer durables and investment goods, relative to their share in total GDP, and the low value-added content of certain global supply-chains that generate high trade intensity. This is partly because, unfortunately, we still measure trade in flows and not in value added. There were also temporary reasons, involving shortages of trade finance and unusual inventory movements resulting from unanticipated demand shifts, which altogether amplified the fall in trade. Considering the latter factors as “one-offs”, we do not expect the rebound of trade in 2010 to be entirely symmetric to its fall.

We estimate that world trade of goods and services will grow in 2010 by a relatively robust average of 9.5% in real terms. Exports by developed countries would grow by 7.5%, while shipments to developed countries from the rest of the world by more than 11%. The expansion of south-south trade will be even larger, and will no doubt be a driver of the world recovery in the years to come. Distinguishing growth rates and levels, world trade would need to grow for another year at the same rate to reach its peak level attained at the end of 2008.

I agree with the Fund that the risks on the recovery are, at this stage, on the down side. Although the WEO [World Economic Outlook] shows that unemployment may be linked to output losses, and hence may not be “sticky” in the long-run, it also shows that unemployment will phase out only gradually. Lots of jobs lost in the past two years in the industrial sector of advanced economies will not be replaced. During the recession, relative prices have shifted and technological change used to improve competitiveness. More skilled jobs may not be immediately accessible to the unemployed. We know that in this largely jobless recovery, at least in the short-run, the risk of protectionist pressures is the highest.

The good sense of political authorities, demonstrated during the crisis, should continue to apply in a way that leaves markets open, letting the trade multiplier spread the recovery from region to region. Trade opening can further contribute to economic growth and job creation, and the stimulus package of the Doha Round is there to be taken.

A last word about trade finance. The release of the ICC's intelligence market survey last week indicates that, despite the improvement in core markets — i.e. the financing of north-north and trans-pacific trade — at the periphery markets are still in dire conditions. The confusion of country and counterparty risk is leaving low income countries on the side of the road, and, in current bank restructuring, trade financing is not necessarily a priority relative to more remunerative, short-term market activities. The risk of a permanent withdrawal by international banks from low-income markets is real at a time when regulatory change may not make it easier to do business. We should further address this risk in our preparations for the G-20 Summit, if we want low income countries not to be overly constrained in benefiting from the global recovery.

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