Global Trade Slows Down: WTO

The latest version of the World Trade Organization’s Goods Trade Barometer, which monitors the trade relative to recent trends, indicates global trade has stagnated. The pace of growth was lower than in the first quarter of 2022 and trade will likely remain weak in the year’s second half, which can be explained by the world’s rising recession risk leading to higher inflation and discouraging customers from buying goods. 

According to the WTO Trade Barometer, global merchandise trade volume plateaued, and year-over-year trade growth slowed to 3.2 percent in 1Q22, down from 5.7 percent in 4Q21. The slowdown perfectly shows the impact of a supply chain not fully recovered from the COVID-19 pandemic that was further damaged by Russia’s invasion of Ukraine and China’s COVID-19 lockdowns. Along with the Barometers index comes more uncertainty about forecasts due to the ongoing conflict in Ukraine, rising inflationary pressures and expected policy tightening in advanced economies, as stated by WTO. 

The Barometer’s component indexes for exports are stable, but the indexes for automotive products, air freight and electronic components are below trend. Indexes for raw materials and container shipping are above trend. Considering this information, the WTO determined “stagnating global trade growth.” 

Additionally, global surveys show business activity contracting, with an unlikely probability of a turnaround due to inflation reaching multi-decade highs in many parts of the world, as stated by Reuters. The global economy’s increased risk of sliding into recession has made consumers face generation-high inflation, forcing them to rein in spending. Meanwhile, central banks are tightening policy aggressively so households worldwide must “pay more for the goods and services they buy, meaning they have less to spend on other items. That is a reduction in economic output, so that is what is driving the recession. Higher interest rates are playing a small part, but really it is the higher inflation,” said Paul Dales, Chief UK Economist, Capital, to Reuters. 

Mexico’s preliminary GDP growth for 2Q22 was 1 percent over the previous quarter, implying that the economy expanded at an annualized rate of about 4 percent. However, the slowdown in the US economy will likely harm the Mexican economy. In addition, fiscal policy is expected to be less expansionary, reducing aggregate demand, according to BBVA Research.

Mexico is at a turning point in terms of trade due to nearshoring opportunities, which the country could take advantage of. If the country does not act and welcome investment, it could go elsewhere.