After a strong rebound last year, there was an expectation that global trade would be on the path of steady growth in the current year. However, the Russia-Ukraine war, starting in late February, dimmed the optimism to some extent. Though there was a sign of robust growth in global goods trade in the early period of the current year, a slowdown is now visible. The good news is that there is no indication of negative global trade growth, meaning that the world economy is on a firm footing in the post-Covid period.
In the first quarter of the current year, the value of global trade rose to a record US$7.7 trillion, according to the United Nations Conference on Trade and Development (UNCTAD). Global merchandise trade jumped by around $1 trillion over the same period of last year. The trade value in the January-March period of the current year also increased by $250 billion over the last quarter or October-December period of 2021 and was 'fuelled by rising commodity prices, as trade volumes have increased to a much lower extent.'
The UN agency also cautioned in the last month's Global Trade Update that trade growth has continued to slow during the second quarter of 2022. "The war in Ukraine is starting to influence international trade, largely through increases in prices," the report said, adding that rising interest rates and the winding down of economic stimulus packages would likely hurt trade volumes for the rest of 2022. Moreover, volatility in commodity prices and geopolitical factors will also continue to make trade developments uncertain.
Now, another update report confirmed that the pace of global trade in goods has slowed. The World Trade Organization (WTO), in its latest Goods Trade Barometer, issued on August 23, stated that global goods trade continued to grow in the second quarter of 2022 but that the pace of growth was slower than in the first quarter and is likely to remain weak in the second half of the year.
The barometer is a composite leading indicator for global trade, which provides real-time information on the course of merchandise trade relative to recent trends. The interpretation of the movement of the latest barometer index is that year-on-year trade growth may slow further but remain positive as 'trade simultaneously weighed down by the conflict in Ukraine' and 'buoyed by the lifting of Covid-19 lockdowns in China'.
The trend and movement of global trade are critical for the countries like Bangladesh, which is mainly reliant on the development of international trade. The country's reliance on global trade is well-established now. Any disruption in global business has a serious negative impact on Bangladesh's economy. Due to the Covid-19 pandemic, global trade faced a significant drop of 7.50 per cent in 2020. Bangladesh's international trade in goods declined by around 12 per cent in the fiscal year 2019-20 (FY20) due to the pandemic. Again, the country's Gross Domestic Product (GDP) growth rate slid sharply to 3.50 per cent in FY20 from 7.90 per cent in FY19.
The global economy, however, started to recover in 2021, which is also reflected in the worldwide trade growth. Taking cue from the global trend, the country's international trade also rebounded. Total trade in goods registered around 17 per cent growth in FY21 in value terms. It further jumped by 35 per cent in the last fiscal year (FY22).
Official statistics showed that the total value of trade in goods crossed $140 billion in the last fiscal year, which was $104 billion in FY21. Exports receipt recorded at $52.08 billion as it registered 34.38 per cent growth in the last fiscal year over the FY20. For the first time in the history of Bangladesh, export earnings crossed $50 billion level. Imports also jumped by around 36 per cent and the value reached $89.16 billion in the last fiscal year. The big import jump also resulted in a higher trade deficit, creating pressure on the country's foreign exchange reserve.
Historically, Bangladesh is a country of trade gap as a higher amount of imports is necessary to meet the requirements of various raw materials, capital goods, intermediate goods and fuel oil. The country's export is also largely reliant on imports. For instance, ready-made garment (RMG) is the largest export item of Bangladesh. In FY22, earnings from RMG export were recorded at $42.61 billion. At the same time, $14 billion RMG-related intermediate goods were also imported.
Due to the recent crisis in the country's foreign exchange market and continuous increase in the price of US Dollar in the local market, the central bank has taken steps to curb the imports of various products. The idea behind the steps is to subdue the demand for imports by discouraging the less-essential and luxury products. In addition, it is also expected to ease some pressure induced by imported inflation.
How and to what extent the restrictive measures bring the desired outcome will be visible after the end of the first quarter of the current fiscal year. Both the values and volumes of imports are, however, essential to benefit from the dampening effect. The global price situation of goods is critical in this connection. The war in Ukraine has already affected world trade, pushing upward the international prices of energy and primary commodities. As predicted by UNCTAD, the situation may continue like this due to the inelastic global demand for food and energy products. The rising food and energy prices will increase trade values and are likely to lower the volumes of trade to some extent. This development also has some implications for Bangladesh.
