US Steady Trade Growth Not Enough to Sway WTO from Prediction Downgrade

Strong economic headwinds on at least three continents appear too strong to be offset by continued US trade growth through at least the next 15 months, according to suddenly pessimistic World Trade Organization (WTO) economists.

The WTO announced this week it had significantly lowered its forecasts for world trade both in 2014 to 3.1% (down from a 4.7% prediction in April) and to 4% in 2015 (5.3% previous forecast). The main culprits for the outlook included a weakened China and lower import demand from resource-rich regions like South and Central America as well as European stagnation.

Euler Hermes Economist Dan North, who will be speaking during the “Keynote Address/Global Economic Update” of FCIB’s 25th Annual Global Conference in Baltimore next month, said with those concerns coupled with the fear of European deflation and increased instability, lingering effects of Japan’s “remarkable policy blunder of an increased consumption tax” and ongoing US employment and real estate instability, it’s “no wonder trade gets marked down.”

The WTO also expressed concern that tensions between Russian and the West over the Ukraine border dispute could result in widened trade sanctions and those in the Middle East could create a spike in oil prices or availability. It also mentioned the difficulty to date in containing the deadly outbreak of Ebola in West Africa. “The presence of several such low probability/high cost risk factors has made the trade forecast particularly difficult to gauge this year.”

The WTO did appear encouraged that US trade growth remained steady, even if increasing at a somewhat slow pace, and is primed to shake off lingering effects from “idiosyncratic factors” like its early 2014 harsh winter. Luis Noriega, ICCE, vice president at JPMorgan Chase Bank, said US growth expectations’ previous volatility may leave some dependent markets somewhat hesitant to react to each bullish American data point with an activity surge right away. But if any nation can move the needle, it is the United States.

“US economic data surprises can have a global impact beyond its just over one-fifth share of global GDP,” said Noriega, who is serving as a moderator on a “Sanctions”-themed panel at the Global Conference. “Surprises on US data can lead to surprises in other economies, and upgrades on US growth, similarly, lead to upgrades in others. Only emerging market, Asian economies can boast a similar lead relation to other countries' growth.”

- Brian Shappell, CBA, CICP, NACM staff writer
For more information on FCIB’s 25th Annual Global Conference, being held Oct. 12-14, or to register, visit FCIB’s website.

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