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Global trade to drop 5% this year amid geopolitical headwinds

Global trade will decline in 2023 by about 5% from last year’s record as high borrowing costs weigh on economies, US-China tensions redirect supply chains and more policies restricting cross-border commerce emerge, a UN agency said.

The value of goods and services trade will reach $30.7 trillion compared with $32.2 trillion in 2022, according to the Geneva-based United Nations Conference on Trade and Development.

According to Bloomberg News, a $2 trillion, or 8%, slump in merchandise trade is the main reason.

Services trade this year will increase by $500 billion, or about 7%, from a year ago, UNCTAD said in a report Monday.

High inflation

Lower costs for goods affected by high inflation a year ago are also a reason for the decline.

  • “Even though the value of traded goods decreased in 2023, the slightly positive trend in the volume of international trade suggests a resilient global demand for imported products,” the report said.

UNCTAD noted how countries aligned geopolitically are trading more with each other while those in disagreement are trading less bilaterally.

That divergence among several issues clouding the outlook for next year, the agency said.

  • “The forecast for global trade remains highly uncertain and generally pessimistic,” the report said. “While certain economic indicators hint at potential improvements, persistent geopolitical tensions, high levels of debt, and widespread economic fragility are anticipated to exert negative influences on global trade patterns.”
  • Geopolitical factors: Geopolitical factors, persisting inflation, and concerns about global debt sustainability will weigh on international trade flows, according to Unctad.
  • “Geopolitical tensions, including the Russian Federation’s conflict with Ukraine, remain the biggest risks negatively affecting international trade during 2023.”

Interest rates are also expected to remain relatively high in many economies as central banks attempt to tackle persistent inflationary pressures.

Commodity prices are expected to remain above pre-pandemic averages, especially for energy, food, and metals, Unctad said.

  • “The current record levels of global debt, coupled with high-interest rates, will continue to negatively affect the macroeconomic conditions of many countries.”
  • On the other hand, positive factors such as an improved economic outlook for major economies, decreasing shipping costs, a weakening of the US dollar, and rising demand for services will help bolster global trade.
  • “Overall, although the outlook for global trade remains uncertain, the positive factors are expected to compensate for the negative trends,” Unctad said.

The UN body expects international trade patterns in 2023 to be affected by “near-shoring”, or relocating production processes closer to target markets, and “reshoring”, bringing manufacturing back to home countries, as companies focus on improving supply chain resilience.

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