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As global trade passed a sluggish year in 2023, a strong rebound is necessary to support world economic growth in the current year. However, the possibility of a strong recovery of global trade seems thin for various reasons, as predicted by two leading international organisations.
The World Trade Organization (WTO), in the second week of this month, predicted a modest recovery of global trade. It said that after falling by 1.20 per cent last year, international merchandise trade volume may increase by 2.60 per cent in the current year and 3.30 per cent in the next year. The latest 'Global Trade Outlook and Statistics' report of the WTO also cautioned that three critical risks pose threats to the global trade recovery. These are regional conflicts, geopolitical tensions and economic policy uncertainty.
The past year witnessed a larger drop in global trade regarding value. Merchandise exports dropped by 5 per cent to US$ 24.01 trillion, according to the WTO report. Trade in services, however, increased significantly as the global exports of commercial services jumped by 9 per cent to US$ 7.54 trillion.
Earlier last month, the United Nations Conference on Trade and Development (UNCTAD) released its Global Trade Update. It mentioned that in the previous year, global trade saw a 3 per cent contraction, equalling roughly $1 trillion, compared to the record high of $32 trillion in 2022. Despite this decline, the services sector showed resilience with a $500 billion, or 8 per cent, increase from the previous year. In comparison, trade in goods experienced a $1.3 trillion, or 5 per cent, decline compared to 2022.
Both reports showed that a big decline in trade in goods derived from the overall fall in global trade. So, more focus is now on recovering the trade in goods or merchandise. The UNCTAD report also added that the forecast for 2024 is broadly positive, with GDP growth expected to continue at around 3 per cent. It added that the demand for environmental goods, especially electric cars, is set to play a crucial role in driving trade growth.
UNCTAD, however, cautioned that the logistical challenges such as shipping disruptions in the Red Sea, Black Sea and Panama Canal may increase costs and disrupt supply chains. Ongoing geopolitical tensions and regional conflicts could also renew volatility in energy and agricultural markets. All these may slow the pace of global trade.
Moreover, the latest escalation in geopolitical tension in the Middle-East after Iran's missile and drone assault on Israel during the last week as a response to the Zionist state's persistent killing of Iranian commanders over the years in Syria and Lebanon has added to the woes. Though the assault was brief and the damage was minor, Israel still retaliated in a calibrated manner. Even so, the Middle East still remains volatile, leaving a shadow on global trade. As UNCTAD and WTO reports were launched before the latest Iran-Israel stand-off, it was not factored in the forecasts.
Now, slow trade growth means a slowdown in economic activities in various countries. As the countries are now more dependent on trade, any disruption in trade flow raises the cost of output as both exports and imports become costlier. In other words, it reduces national incomes and consumption and ultimately slows overall economic growth.
WTO report also showed that merchandise exports of least-developed countries (LDCs), including Bangladesh, may grow by 2.7 per cent in 2024, which was 4.1 per cent in 2023. It may, however, rebound by 4.2 per cent in the next year.
Bangladesh, however, witnessed a sharp decline in annual goods trade in the last year, which was in line with global trade and not in line with LDCs' combined trade growth. So, the country is now facing the challenge of recovering trade growth.
The country's overall trade in goods dropped to around US$ 123 billion last year, a 14 per cent fall from $143 billion in 2022. This is the biggest decline in the country's international trade in the previous decade. Even during the pandemic in 2020, the overall trade in goods dropped by 12.30 per cent. Again, the country's trade in services also declined last year by 22 per cent to $17.23 billion, according to the statistics available with Bangladesh Bank. Export receipts in services declined sharply than import payments, causing a higher deficit in services trade in 2023.
However, there is a difference between the latest falls and the fall in the pandemic year. 2020 witnessed a simultaneous fall in both exports and imports, by 14.50 per cent and 10.60 per cent, respectively. The big drop in imports drove the fall last year although exports witnessed a small growth. Imports of goods dropped by 24 per cent last year and stood at around $67 billion from $88 billion in 2022. At the same time, exports inched by only 2 per cent to $55.80 billion last year from $54.70 billion in the previous year. The import restrictive measure to ease the pressure on the country's foreign exchange reserve is a significant factor behind the decline in merchandise import. The rise in the cost of imports due to geopolitical tension also put additional pressure.
During the first quarter of the current year the export earnings registered 11 per cent growth. The imports, however, surged by less than 2 per cent reflecting the continuation of the sluggish trend in trade in goods. So far, no strong sign is also there that there will be a rebound in import in the second quarter which is also the last or final quarter of the current fiscal year.