World trade contracts in the second half of 2022 despite having a record year

World trade will reach a new record; however, deteriorating economic conditions and increased uncertainty have slowed it down until reaching a contraction during the second half of 2022, the United Nations Conference on Trade and Development reported on Tuesday (UNCTAD).

In a publication trade activity update UNCTAD predicted that world trade will come to a record level of around 32 trillion dollars in 2022 with an increase of 10% in the exchange of goods and 15% in that of services.

These levels are largely due to solid first half growth, on the contrary, growth has been moderate during the second half of the year. In the third quarter of 2022, trade in goods decreased by 1% compared to the second quarter of 2022. Meanwhile, trade in services increased by around 1.3% in the same period.

For the fourth quarter, he estimates that the value of world trade will decrease in both goods and services.

UNCTAD qualified the contraction, explaining that it has been nominal, since the volume of trade continued to increase throughout the year, which shows the global demand resistance.

energy prices drop

Part of the fall in the value of international trade during the second half of 2022 is attributed to the drop in the prices of primary products, especially energy.

UNCTAD highlighted that demand for foreign products proved resilient during the year, reaching a 3% increase in trade volumes.

However, he estimated that the geopolitical frictions, inflation that does not subside and lower demand world will negatively affect world trade in 2023.

The analysis detailed that the international prices of intermediate inputs and consumer goods have continued to increase in the current semester, which has raised concerns given the persistence of inflation.

Goods and services

It further revealed that the fall in the value of world trade has so far been limited to goods as services have been more resilient and its value continued to increase during the period in question.

The publication specified that with the exception of Russia, trade in goods for all major economies was well above from year-ago levels, although the positive trend was reversed for most economies in the third quarter.

According to the data from the Conference, the countries with the highest commercial activity in the third quarter were Brazil, China and India.

In the third quarter, the East Asian economies showed greater resilience, while South-South trade lagged.

gloomy year

By 2023, UNCTAD projects a bleak picture in the trade sphere, with a further slowdown due to factors such as slower growth in the economy caused by high energy prices, rising interest rates, sustained inflation in many economies, and negative economic contagion from the war in Ukraine.

The study argues that the high prices of traded goods and energy, as well as the continuous increase in intermediate inputs and consumer goods will decrease the demand for importsreducing the volume of international trade.

In addition, he points out that the record levels of global debt and rising interest rates raise doubts about the sustainability of the debt. However, it foresees a continued tightening of financial conditions, which would further increase the pressure on highly indebted governments and affect investment and international trade flows.

UNCTAD cited other factors that affect international trade patterns such as the reconfiguration of global supply chains and the sought-after transition towards a greener economy, which would stimulate demand for sustainable products, reducing demand for fossil fuels.