Global Trade Faces Slowdown as Economic Growth Weakens

The world is facing a major slowdown in global trade as economic growth weakens.

In addition, governments around the world are increasingly curbing business with China, and Russia’s invasion of Ukraine is exacerbating geopolitical tensions, The Wall Street Journal (WSJ) reported Wednesday (Aug. 9).

A combination of factors are contributing to the downturn, including inflation and the Fed’s subsequent interest rate hikes, which impact business investment and consumer spending on goods, according to the report.

“Fragmentation, deglobalization, de-risking will play a bigger role in the coming years and could be very significant,” Lorenzo Codogno, chief economist at LC Macro Advisors and a visiting professor at the London School of Economics, said in the report. “But I’m skeptical that it can happen overnight.”

The International Monetary Fund (IMF) has estimated that world trade will only grow by 2% this year and the World Bank and the World Trade Organization both forecast trade will grow by 1.7%, the report said.

However, resilient consumer demand in the United States has bolstered the global economy, supported by increased wages, per the report.

Matthew Martin, U.S. economist for Oxford Economics, said the holiday season may bring some improvement but that strong headwinds such as those mentioned above will prevent a sustained recovery until 2024, according to the report.

The restrictions on doing business with China have been laid out more clearly with the U.S. announcement of fresh curbs on investment in some Chinese technology companies, following last year’s restrictions on the export of advanced semiconductors and chip-manufacturing equipment, the report said.

Furthermore, many European countries have also clamped down on Chinese investments in the regions and the continent’s leaders are looking to reduce dependence on China for critical raw materials and other inputs, per the report.

Pierre-Olivier Gourinchas, IMF chief economist, noted this trend and said, “We see the increase in trade restrictions that have been imposed by countries on one another. There is an impact in terms of direct investment also and that is quite important.”

It was reported in June that international trade deals are fading in favor of less formal pacts in an effort to navigate a changing economic and political landscape.