‘Positive global trade trend may soon end’

MANILA, Philippines — While the value of global trade hit a record high in the first quarter , the positive trend may soon end this year amid tightening policies and geopolitical frictions, the United Nations Conference on Trade and Development (UNCTAD) said.

In its latest global trade update, the UNCTAD said the value of global trade remained at an uptrend but at a slower pace in the first quarter at $7.7 trillion, $1 trillion higher than the same period last year, and $250 million higher than the previous quarter.

The report said trade in goods and services both grew in the first quarter to $6.1 trillion and $1.6 trillion, respectively.

“Trade growth is expected to remain positive but continues to slow during the second quarter of 2022,” the UNCTAD said.

It added that the positive trend for international trade may soon come to an end, with various factors seen to affect international trade this year.

“Rising interest rates and the winding down of economic stimulus packages will likely have a negative impact on trade volumes for the rest of 2022. Volatility in commodity prices and geopolitical factors will also continue to make trade developments uncertain,” the UNCTAD said.

“Economic growth forecasts for 2022 are being revised downward due to rising interest rates, inflationary pressures in many economies, and negative global economic spillovers  from the  conflict in Ukraine. It is likely that global trade will reflect these macroeconomic trends, with a decrease in trade growth,” it added.

The UNCTAD explained that the effect of the conflict in Ukraine is another factor that would affect the growth of world trade this year, as it is putting further upward pressure on the international prices of energy and primary commodities.

“In the short term, because of the inelastic global demand for food and energy products, rising food and energy prices would likely result in higher trade values, and marginally lower trade volumes,” the UNCTAD said.

It also emphasized that risks and uncertainties remain high for global supply chain operations.

“COVID-19 mitigation measures may continue to create supply disruptions and global economic uncertainties are likely to make investments riskier during 2022,” it said.

It added that long-term trends to shorten supply chains and to diversify suppliers may start to influence international trade this year.

Meanwhile, the report also pointed out rising concerns about debt sustainability is another factor that will affect global trade this year.

“Given the record levels of global debt, concerns of debt sustainability are likely to intensify in the coming quarters due to mounting inflationary pressures and associated interest rate hikes,” the UNCTAD said.

It said that the ongoing tightening of financial conditions is expected to heighten pressure on the most highly indebted governments, amplifying vulnerabilities and negatively affecting investments and international trade flows.

The report also pointed out that the increasing global demand for products that are environmentally sustainable is seen to affect global trade patterns this year.

“While the consequences are expected to influence trade in the medium and long terms, some may already materialize during 2022. This would largely depend on the implementation of government policies regulating the trade of carbon intensive products,” the UNCTAD said, adding that persistently high energy prices may also result in a general increase in the demand and trade of products required to support greener energy alternatives

Moreover, the UNCTAD said trade agreements which have recently entered into force such as the Regional Comprehensive Economic Partnership (RCEP) and the African Continental Free Trade Area should provide additional momentum for intra-regional trade.

However, inter-regional trade will likely continue to be negatively affected by rising transport costs, logistic disruptions, and geopolitical frictions, it said.