In the aftermath of the economic crisis, there has been slow growth in global trade, the World Bank has said.
In 2012 and 2013, the global trade expanded by less than 3.5 per cent, which is well below the pre-crisis average annual rate of seven per cent, holding back developing country growth in recent years, the World Bank said in a latest report released yesterday.
In the latest edition of Global Economic Prospects, the Bank said weak demand, mainly in investment but also in consumer demand, is one of the main causes of the deceleration in trade growth.
With high-income countries accounting for some 65 per cent of global imports, the lingering weakness of their economies five years after the crisis suggests that weak demand continues to adversely impact the recovery in global trade, it said.
However, long-term trends have also slowed trade growth, including the changing relationship between trade and income.
Specifically, world trade has become less responsive to changes in global income because of slower expansions of global supply chains and a shift in demand from trade-intensive investment to less trade-intensive private and public consumption, the Bank said.
The analysis done by the World Bank finds that these long-term factors affecting trade will also shape the behaviour of trade flows in the years ahead—in particular, that the expected recovery in global growth is not likely to be accompanied by the rapid growth in trade flows observed in the pre-crisis years.
Noting that weakness in global import demand has contributed about one percentage point to the reduction in the growth in global trade, the report said some five years after the global financial crisis, global GDP is about 4.5 per cent below its pre-crisis trend, with even larger shortfalls in the United States and the Euro Area (8 per cent and 13 per cent, respectively).
This soft demand in high-income countries is reflected in the weakness of their import volumes.
The report said two factors have contributed to declining sensitivity.
First, the rapid integration of global supply chains-which had triggered rapidly rising shipments of intermediate goods across borders—has settled and the growth in cross—border shipments within supply chains has slowed.
Second, since the great recession, the recovery in investment, which has particularly large import content, has lagged behind other demand components (eg consumption and government expenditure), it said.
Observing that trade will provide less support for global growth in the medium—term, the report said rising global demand will lift trade also.
However, even as global GDP growth recovers, global trade growth is likely to be permanently lower than in the 1990s when supply chains began to rapidly expand across borders and were accompanied by strong investment growth, it said.