WTO Sees Sharp Slowdown in Global Trade, Pointing to Possible Recession, Lower Inflation

A slowdown in trade could help bring down price pressures by easing pressure on supply chains and reducing transportation costs. It also means there is an increased risk that the global economy will contract.

“The global economy faces a multipronged crisis,” said

Ngozi Okonjo-Iweala,

secretary-general of the WTO, the Geneva-based body responsible for enforcing the rules that govern global trade. “The picture for 2023 has darkened considerably.”

The U.S. trade picture in August reflected a slowdown in global demand after showing strength earlier in the year. Exports in goods and services fell 0.3%, the first decline since January, the Commerce Department said Tuesday. Imports were down 1.1%, continuing a downturn that started in June.

Slower imports reflected drops in shipments of capital goods including semiconductors, automobiles and auto parts, as well as a decline in oil imports. The export decline was also a result of slower demand for industrial supplies, vehicles and auto parts. Energy exports, a bright spot for the U.S. since the war in Ukraine started earlier this year, were mixed in August: Natural-gas exports rose but oil exports fell.

The WTO also lowered its forecast for global economic growth in 2023 to 2.3% from 3.3% and warned of an even sharper slowdown should central banks raise interest rates too sharply.

“One has to watch out if there are supply-side constraints that are not responsive to interest rates,” Ms. Okonjo-Iweala said. “There is a danger you could overshoot.”

Several long-term trends are weighing on international trade, including increased tariffs and other barriers, as well as a slowdown in globalization that threatens to intensify as a result of Russia’s invasion of Ukraine and other geopolitical tensions.

Measures of global trade flows also have been volatile, partly because of a cycle of Covid-19 lockdowns and reopenings in China, a major global exporter, that have affected the availability of goods for transport to consumers. The WTO said trade flows should rise 3.5% this year, faster than the 3% previously forecast but down sharply from 9.7% in 2021.

New export orders fell in September at the fastest pace since June 2020, when the pandemic had closed large parts of the global economy, according to a survey of purchasing managers at factories around the world released by S&P Global on Monday.

“This is very sobering news,” said Anabel Gonzalez, the WTO’s deputy director-general.

The slowdown in trade flows looks like it is leading to a decline in freight charges that should help cool global inflation rates, a potentially positive sign that could help ease inflation.

Demand for goods soared in late 2020 as global economies bounced back from Covid-19 disruptions, leading to a surge in trade volumes that stretched through 2021. Congested ports and fast rising freight charges fueled inflation. Many of those blockages are now easing.

A measure of supply-chain pressures compiled by the Federal Reserve Bank of New York has fallen each month from April to August, and freight costs have declined rapidly over recent months.

“A key factor behind this is likely to have been easing goods demand,” wrote Kiki Sondh, an economist at Oxford Economics, in a note to clients. “While this partly reflects a rotation of demand from goods back to services, the sharp deterioration in the global economic outlook has also clearly played a role, meaning that the drop in shipping rates is not quite as good news as it initially seems.”

The annual rate of inflation across the Group of 20 largest economies held at 9.2% from June to August, the Organization for Economic Cooperation and Development said Tuesday. That is a sign price pressures could be peaking around the world, with the exception of Europe, where natural-gas shortages continue to push prices higher.

Factory prices charged by companies in most of Asia declined in September for the first time since the middle of 2020, according to purchasing managers indexes for the region, another sign that a trade slowdown might bring some relief on inflation, said Fred Neumann, chief Asia economist at HSBC in Hong Kong.

“Central bankers will probably interpret it as a silver lining, and so will consumers,” he said.

Signs of a slowdown in global trade are especially visible in Asia. Data from bellwether exporters such as South Korea show a pullback in overseas sales, as Western consumers, especially in Europe, feel the squeeze from high inflation and rising interest rates. China’s demand for imports from its neighbors is also softening as its economy labors under a severe real-estate squeeze and the government’s zero-tolerance approach to Covid-19.

South Korea’s exports grew by an annual 2.8% in September, the weakest performance since October 2020, the country’s trade ministry said Tuesday. Buoyant sales of petroleum products, due to the higher price of oil, offset dwindling sales of computer chips and mobile phones, data showed. Exports to China tumbled an annual 6.5% and exports to Europe fell 0.7%, though exports to the U.S. rose.

In China, the world’s second-largest economy, an export boom that propelled its economy through the pandemic is petering out. Export growth slowed sharply in August and a subindex of the country’s official purchasing managers index that tracks new export orders fell deeper into contractionary territory in September.

Chinese demand for imports is also weak, starving Asian economies of a key destination for finished goods, components and raw materials. Imports grew 0.3% in August compared with a year earlier.

China’s slowdown has also weakened its demand for goods manufactured in Europe, which were just 0.6% higher in the first seven months of the calendar year than in the same period of 2022. At the same time, Europe’s exports to Russia have collapsed in responses to sanctions imposed on the Kremlin following its invasion of Ukraine. But exports to the U.S. have grown rapidly.

—Yuka Hayashi and Jason Douglas contributed to this article.

Write to Paul Hannon at [email protected]