World trade growth dips to 5.5 pc in 2007: WTO

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New Delhi, Apr 20: Sharp economic deceleration in key developed countries caused world trade growth slide to 5.5 per cent in 2007 from 8.5 per cent in 2006, according to World Trade Organisation economists. But for continuing strong growth in emerging economies, including China and India, the 3 per cent dip could have worsened.

The WTO economists said it might decline by a further one per cent to about 4.5 per cent this year due to recessionary tendencies in the United States, weaker demand growth in both Europe and Japan, rise in inflation and depressed global stock markets. The present economic growth forecast for developed markets is 1.1 per cent. For developing countries, growth is forecast at above 5 per cent. Together these could result in world output growth of 2.6 per cent and a global trade expansion of about 4.5 per cent in real terms after discounting inflation.

The global trade body said developing economies and the Commonwealth of Independent States (CIS) region contributed more than 40 per cent of world output growth in 2007. Developing countries' share of world merchandise trade reached a new record level of 34 per cent in 2007. Developing and CIS countries are expected to record faster growth in imports than exports and together they are expected to contribute more than one half of global import growth in 2008.

The WTO economists cautioned that their preliminary assessment of 2007 trade figures and forecasts for 2008 have been unusually difficult to gauge due to the uncertainty caused by sharp market fluctuations. The financial market turbulence, which has considerably reduced economic growth projections for some major developed markets, has clouded the prospects for world trade in 2008.

"These are uncertain and troubling times for the global economy," said WTO chief Pascal Lamy. "To date, the financial market turmoil, significant price surges and the slow-down of developed economies have not led to a disruption of trade. But protectionist pressures are building as policymakers seek answers to the problems that confront us. More than ever we must reinforce our global trading system with rules that are more transparent, predictable and equitable.

"A reinforced trading system is an essential anchor for economic stability and development. Clearly, the best way to achieve this is to conclude the Doha Development round. The time for posturing and delay has ended. What we need now is action," he said.

The preliminary figure of 5.5 per cent trade growth for 2007 is slightly lower than the 6 per cent forecast for 2007 this time last year by WTO. The global economy and world trade started to slow down in 2007 due to the deceleration of demand in the developed regions. North America showed the weakest growth in output, measured as gross domestic product (GDP).

However, the sharp rise of commodity prices ''particularly fuels and metals,'' greatly improved the financial situation of most developing regions and boosted imports. But, higher energy and food prices translated into inflationary pressures worldwide.

Referring to global imbalances caused by significant variations among major currencies, WTO said decline of the US dollar in relation to the euro and other European currencies inflated the dollar values of international trade transactions. The dollar value of world merchandise exports rose by 15 per cent to US 13.6 trillion dollars, and that of commercial services by 18 per cent to US 3.3 trillion dollars in 2007.

But in real terms ''with adjustment for price and exchange rate changes'' real merchandise exports were up by 5.5 per cent in 2007 compared to 8.5 per cent in 2006, WTO added.

The WTO economists said weaker demand in the developed economies reduced global economic growth to 3.4 per cent from 3.7 per cent, roughly the average rate recorded over the last decade. At some 7 per cent, growth in the developing regions was nearly three times the rate recorded in the developed regions.

Economic expansion in the least-developed countries fully matched the growth rate recorded by developing countries as a group in 2007, sustaining a pattern that has been maintained since 2000.

Domestic demand weakened sharply in the United States, which reduced the external deficit and led to the weakest annual GDP growth rate (2.2 per cent) since 2002. A further widening of the external surplus contributed to more than one half of Japan's 2.1 per cent GDP growth rate in 2007. Europe recorded GDP growth of 2.8 per cent a somewhat better performance than both Japan and the United States last year.

Stimulated by sharply higher export earnings and rising investment, Russia's economic growth of 8 per cent was the strongest annual rate since 2000.

In Central and South America, Africa, the Middle East and developing Asia, economic expansion rates showed no signs of deceleration in 2007. China and India continued to report outstandingly high economic growth.

The WTO economists said favourable investment climate in eveloping and CIS countries more than offset the adverse effects of financial market turbulence, especially that arising from the US sub-prime market crisis in the second half of 2007.

Global foreign direct investment (FDI) flows also continued to rise and grew by 18 per cent to US 1.54 trillion dollars in 2007, according to provisional estimates made by the UN Conference in Trade and Development (UNCTAD). FDI flows to Latin America ( Brazil, Chile and Mexico) and Russia were particularly strong (50 per cent and 70 per cent respectively).

The WTO economists said recessionary tendencies in the United States, weaker demand growth in both Europe and Japan, a rise in inflation and depressed global stock markets have clouded near-term prospects for the world economy. Uncertainty arises as to how long the developing countries can maintain a strong pace of economic growth in the face of sluggish demand in the major developed markets and rising inflationary pressures.

Forecasting a further deceleration in world economic growth in 2008 due to shrinking domestic demand in the US in the first half of 2008, WTO, however, said slowdown in GDP growth in Europe is expected to be less pronounced than in the United States and can be slightly above one per cent in 2008.

WTO expected more than 5 per cent GDP growth and over ten per cent import growth in developing countries and the CIS in 2008. But it cautioned political consequences of higher food prices in some countries.

The economists said if world GDP grew between 2.5 per cent and 3 per cent, global merchandise trade could further slide by one per cent to about 4.5 per cent in 2008.


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