The war in Ukraine has threatened supply chains, impacting prices for food and other goods. The effects will be felt across the globe, the World Trade Organization (WTO) said on Tuesday.
The volume of world merchandise trade is expected to grow by only 3% this year, below the previous forecast of 4,7%, and 3,4% in 2023, although these figures could be revised given the uncertainty surrounding the conflict.
The Russian invasion began on February 24 and the organization said the most immediate consequence of the war has been a sharp rise in commodity prices.
Decreasing supplies, higher prices
Both Russia and Ukraine are key suppliers of essential goods such as food, energy and fertilizers, the supply of which is now under threat.
Grain shipments through Black Sea ports have also been halted, with potentially dire consequences, especially for poorer countries.
“Smaller supplies and higher food prices mean that the world’s poorest people could be forced to go without. This cannot be allowed to happen.”, " said Ngozi Okonjo-Iweala, Director-General of the WTO.
More trade is needed
The war comes as other factors are affecting global trade, including the latest Covid-19 lockdowns in China that are once again disrupting maritime trade just as supply chain pressures appeared to be easing.
Ngozi Okonjo-Iweala urged governments to work with multilateral organisations such as the WTO to facilitate trade.
“In a crisis, more trade is needed to ensure stable and equitable access to necessities. Restricting trade will threaten the well-being of families and businesses and make the task of building a lasting economic recovery from the COVID-19 pandemic more difficult,” he said.
Estimating the impact of war
Given the paucity of data on the economic impact of the conflict, WTO economists have had to rely on simulations for their assumptions about global gross domestic product (GDP) growth through 2023.
These estimates capture the direct effects of the war, including the destruction of infrastructure and increased trade costs; the impact of Russian sanctions, including the blocking of Russian banks from the SWIFT international banking payments system; and reduced aggregate demand in the rest of the world, due in part to rising uncertainty.
The Organization said global GDP at market exchange rates should rise by 2,8 percent this year, or 1,3 percentage points below the previous forecast.
Output growth is expected to rise to 3,2% in 2023, “assuming continued geopolitical and economic uncertainty,” which is close to the average rate of 3,0% for the 2010-2019 period.
In the Commonwealth of Independent States (CIS) region, created after the dissolution of the Soviet Union in 1991 and which excludes Ukraine, GDP is expected to fall by 7,9%, leading to a 12% decline in imports.
However, exports are expected to rise by almost 5% as other countries continue to rely on Russian energy.
"If the situation were to change, we could see further growth in export volumes in other fuel-producing regions," the WTO said.
Low growth in merchandise trade
Given current GDP assumptions, the agency has projected that merchandise trade volume growth this year could be as low as 0,5% or as high as 5,5%. Figures will be updated in October or earlier if deemed necessary.
The volume of world merchandise trade grew about twice as fast as global GDP in the two decades preceding the global financial crisis of 2007–2008. The ratio fell to about 1:1 on average in the aftermath of the crisis.
If the current forecast holds true, there will be no fundamental change in the relationship between trade and output.
“Risks to the outlook are mixed and difficult to assess objectively,” the agency said. “There is some upside potential if the war in Ukraine ends sooner than expected, but substantial downside risks could emerge if fighting persists for a long time or if the conflict escalates.”
Oil and natural gas
Global fuel prices were already rising before the war. Last month, the benchmark price for crude oil was $118 a barrel, up 38% from January and more than 80% year-on-year. Daily prices have moderated recently, from a peak of $128 a barrel on March 8 to $104 on April 1.
Unlike oil prices, the cost of natural gas has varied considerably across regions. In Europe, where many countries still rely on Russian supplies, the price rose 45% between January and March, to $41 per million British thermal units (Btu). The price has remained relatively low in the United States, at around $4,9.
The trade agency said higher oil prices could reduce real incomes and import demand around the world, while higher natural gas prices would likely have a bigger impact in Europe.
Effect of sanctions
The trade forecast was released alongside the annual trade statistics for goods and commercial services.
Merchandise trade volume, measured by the average of exports and imports, increased by 9,8% in 2021, with the value rising by 26% to $22,4 trillion.
Trade in services, which includes the transport sector and covers container shipping and the passenger airline industry, also increased by 15% in 2021, reaching $5,7 billion.
Although travel trade was positive overall, figures remained weak as COVID-19 restrictions were only partially eased during the year.
The World Trade Organization said Western sanctions on Russian companies and individuals are likely to have a strong impact on commercial services.
“Before the pandemic, travel, tourism and air transport services were Russia’s most traded services, accounting for 46% of its exports and 36% of its imports. These services, already heavily affected by the pandemic, may be severely affected by economic sanctions,” the agency noted.
Source: United Nations
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