MercoPress. South Atlantic News Agency

WTO mixed forecast with “uncertainties” for 2006

World trade began 2005 with sluggish growth and then regained momentum to end the year registering 6% growth in the volume of goods traded. However there are a number of uncertainties on the horizon for 2006, with signs of a stronger investment climate mixed with fragile prospects for consumption and employment, said Thursday Patrick Low, World Trade Organization chief economist.

WTO economists predict 7% growth in the volume of goods trade (i.e. in real terms, discounting price changes) and 3.5% growth in the world economy in 2006. A similar pattern can be seen for trade in goods and services measured in dollars even though the numbers are different because of higher energy prices, they say.

"The global trading system is undergoing a period of transition," said WTO Director-General Pascal Lamy. "Shifting economic circumstances, major advances in technology and the emergence of new players on the global scene all underscore that we are on the cusp of big changes. Persistent imbalances, driven largely by macro-economic factors continue to be a cause for concern in some major economies. In such a climate of uncertainty, one thing is certain: member governments must strengthen the global trading system by making it more equitable and relevant for those who trade in the 21st century. There can be no doubt that the best way to do this would be to conclude this year an ambitious agreement in the Doha round of global trade negotiations."

According to WTO in 2005 world trade as measured by merchandise exports, grew by 6% in real terms (at constant prices, i.e. volumes adjusted to take account of price changes), after an exceptional 9% expansion recorded in 2004. The slowdown reflected a weaker world economy, and was observable from mid-2004. However, this downward trend in trade growth was arrested and reversed by the second quarter.

Trade growth in dollar value terms, which is affected by price changes, decelerated more strongly than real trade growth in 2005, as average dollar prices increased less rapidly (6.5% in 2005 compared to 11% in 2004). The value of world merchandise exports rose by 13% in 2005, compared to 21% in 2004 and exceeded the 10 trillion US dollars mark for the first time. Commercial services exports are estimated to have increased by 11% at current prices to 2.4 trillion in 2005 (19% in 2004).

Fuelled by the rise in oil prices, Africa, the Middle East, Central and South America and the Commonwealth of Independent States (CIS, the former Soviet Union countries excluding the Baltic countries) recorded strong merchandise export growth in 2005. All these regions are large net exporters of fuels. Africa and the Middle East recorded their highest shares in world merchandise exports in two decades, due to developments in the oil market over the last two years.

Europe's trade performance was sluggish in 2005, in line with its overall economic performance. Export and import growth were weaker than in all other regions in terms of both goods and services. The rise in North America's merchandise and services exports remained slightly below the global expansion rate.

Trade developments by sector showed a large variation, mostly due to relative price developments. Weak and stagnating prices for food, agricultural raw materials and manufactured goods contrasted with a further sharp rise in metals and fuels prices. Consequently, the share of fuels and other mining products in world merchandise trade rose to 16%, the highest level since 1985. On the other hand, the share of agricultural products in world merchandise exports decreased to a historic record low of less than 9%.

Within the manufacturing sector, the largest export value increases were observed for iron and steel products and for chemicals. Although global demand recovered somewhat for computers and other electronic products, the trade value of these categories expanded no faster than that of manufactured goods in general. In other words, electronic products have not regained the dynamic role they played in the expansion of trade in manufactures throughout the 1990s. In the 1990s, the export value of electronic goods rose on average by 12% or twice as fast as all other manufactured goods.

Among the broad commercial services categories (transportation, travel and other commercial services) expansion rates were rather similar in 2005, ranging from nearly 10% for travel to 12% for transportation services.

Exchange rate fluctuations were significant in 2005. In the course of the year, the euro, the British pound and the Japanese yen depreciated vis-à-vis the dollar, reversing the appreciation which had occurred throughout 2004. However, the annual 2005 averages of these exchange rates to the US dollar remained largely unchanged from the preceding year. On the other hand, the currencies of a number of major natural resource exporting countries such as Australia, Brazil, Canada, Chile and Mexico, appreciated between 3.5% and 17%.

The marked rise in prices for fuels and other mining products has boosted the trade surplus of the oil exporting countries (regions) and deepened the trade deficit in many oil importing countries. The United States, which was already running large deficits in its trade balance (goods) and current account (goods and services) in 2004, experienced a further widening of these deficits in 2005. The US deficit in goods and services trade corresponded to slightly less than 6% of US gross domestic product (GDP). It was also about 6% of world merchandise and commercial services exports.

Low interest rates in developed country markets contributed to an easing of the debt situation in many developing countries. The resurgence of foreign direct investment (FDI) flows and the sharp rise in the stock markets worldwide are additional indicators that capital market developments were supporting the recovery of the global economy and trade in the course of 2005.