World leaders wager global trade will recover this year

President of the European Central Bank Christine Lagarde attends a session on the closing day of the World Economic Forum annual meeting in Davos, on January 19, 2024. Photo: AFP

President of the European Central Bank Christine Lagarde attends a session on the closing day of the World Economic Forum annual meeting in Davos, on January 19, 2024. Photo: AFP

Published Jan 22, 2024


Global leaders have remained optimistic that trade will recover “towards normalisation” this year, after slumping considerably in 2023, unless ongoing geopolitical tensions worsen or a major war breaks out.

At the closing of the World Economic Forum (WEF) Annual Meeting on Friday, delegates pondered the global economic outlook

Earlier in the week, the WEF Chief Economist's Outlook report warned global economic prospects remained subdued and uncertain, with challenges including tight financial conditions, geopolitical rifts and the rapid development of generative artificial intelligence (AI).

The report highlighted that 43% of chief economists predicted unchanged or improved conditions, while a significant majority expect labour markets and financial conditions to relax in the coming year.

However, it was the current state of global trade that took centre stage on Friday, with leaders saying trade disruption had somewhat eased after being affected by the Russia-Ukraine war.

President of the European Central Bank Christine Lagarde said global trade was one of the three main important things that were normalising, including labour markets and slowing inflation.

“Trade went down and was massively disrupted by this goods-versus-services-versus-goods over the course of the last two years preceding 2023,” Lagarde said.

“But it is beginning now to really pick up, and in October we had global trade numbers that for the first time in many months was up and the pattern of trade is changing.”

Leaders also expressed concern about political developments in the area of the Red Sea and the Suez Canal.

Attacks by Iran-backed Houthi rebels in Yemen, who are targeting Israel-linked ships in protest over the war in Gaza, have prompted many shipping companies to take a massive and costly detour around the southern tip of Africa.

The Red Sea route carries about 12% of global maritime trade, and US and UK military forces have launched a series of strikes against rebel sites in Yemen.

The blockage has resulted in goods being delayed by one to two weeks, adding around $1 million (R16m) in cost as ships go around Africa instead of the shortcut between Asia and Europe.

World Trade Organisation (WTO) director-general Ngozi Okonjo-Iweala said they had been forced to revise downwards their forecasts for 2023 as a result of the Suez Canal blockage.

However, Okonjo-Iweala said they remained positive about the 2024 outcome, though it would still be below the global gross domestic product (GDP) rate.

“It is true that in 2023 trade was considerably down. Actually, we had to revise our forecast down from 1.7% for the year to 0.8%. In the last quarter, we saw an uptick in the numbers and trade showed a recovery led by automobiles, components and parts,” Okonjo-Iweala said.

“We have been more optimistic about 2024, forecasting a considerable recovery to 3.3%. We may be moving towards normalisation but not normal because trade growth is still trending below GDP growth.”

Okonjo-Iweala said the challenges posed by the blockage would add more “uncertainty” around trade, especially as there was a possibility of change of governments in many countries that were going to the polls this year.

“The problem that I have is the geopolitical conflicts that we now see. The problem in the Red Sea and the Suez Canal. We also have problems in the Panama Canal because of climate change,” she said.

“There's so many uncertainties, and of course all the elections that we see around the world, and what that may bring. I think there are lots of uncertainties that make forecasting difficult. However, I'll take a bit of a risk and say I think it will be better than 2023. It may not come in at 3.3% below that, but much better than what we saw in 2023, unless a major war breaks out, then all bets are off.”