Global trade growth is losing momentum and will stay muted next year amid multiple shocks to major economies, the World Trade Organization (WTO) said on Wednesday, in yet another sign that recessions could be looming and weighing on oil demand.
World merchandise trade volumes are expected to grow by 3.5% this year, which would be slightly better than the 3.0% forecast in April, the WTO said in a new forecast today. But next year, WTO economists expect global trade volumes to rise by just 1.0%, which is sharply down from the previous WTO estimate of 3.4% growth.
Import demand is set to soften as major economies slow, although the slowdown is due to different reasons, according to the WTO. Europe’s economies are reeling from soaring energy prices, which are squeezing household spending and raising manufacturing costs.
The energy crisis is already pushing Germany—Europe’s biggest economy—into a recession, which will deepen as we head into the winter months amid the ongoing natural gas and energy crisis, Bundesbank, the central bank of Germany, said in its monthly report in September. Germany also moved last month to nationalize its biggest gas importer, Uniper, to prevent a collapse of German energy and gas suppliers. Across Europe, industries have been forced to curb or shut down production due to soaring energy prices.
In the United States, aggressive Fed rate hikes are set to hit interest-sensitive spending in areas such as housing, motor vehicles, and fixed investment. In China, the zero-Covid policy and weak external demand are challenges to the economy, the WTO said.
“Major central banks are already raising interest rates in a bid to tame inflation but overshooting on tightening could trigger recessions in some countries, which would weigh on imports. Alternatively, central banks might not do enough to bring inflation down, possibly necessitating stronger interventions in the future,” the trade organization said.
Fears of recessions and a strong U.S. dollar weighed on oil prices in the third quarter, when the Brent and WTI benchmarks hit their lowest level since before the Russian invasion of Ukraine.
By Tsvetana Paraskova for Oilprice.com