Fitch Ratings reports a considerable slowdown in global trade after the swift recovery seen post-pandemic in 2021 and 2022. As monetary tightening takes hold, fiscal support lessens, and service sectors reopen, global goods demand has experienced a significant drop.
While world industrial production also decelerates rapidly, services trade sees a slight uplift. However, since services production is less globally specialized, it cannot counterbalance the decline in goods demand.
For 2023, Fitch projects a sharp fall in global trade growth, from 5.5% in 2022 down to 1.9%. This aligns with their projection for global GDP growth, expected to drop from 2.7% in 2022 to 2% in 2023. The outlook suggests trade growth is unlikely to surpass GDP in the medium term, as globalization experiences a standstill.
A decline in world goods trade volume is somewhat counteracted by a revival in services trade, buoyed by tourism and transport sectors. However, given that services only constitute 22% of total trade, they can’t fully mitigate the dip in aggregate trade growth.
Supply-chain bottlenecks, which once severely hampered trade flows, are no longer the primary constraint. Instead, the recent trade slowdown appears to reflect a drop in demand. The US and global consumer goods demand is dwindling, in part due to the phase-out of US consumer-focused fiscal stimulus, monetary tightening, and a shift in demand back to services following the lifting of Covid-19 restrictions.
The repercussions of declining goods demand involve a more marked slowdown in global industrial production than world GDP. Fitch forecasts a leveling off in the trade/GDP ratio, contrasting with the consistent rise seen from the early 1990s to the mid-2010s. Although some evidence of trade redirection is noticeable, there’s no indication at this stage that globalization is retreating.