May 30, 1986
WORLD TRADE MAY GROW AT 3-1/2 PERCENT.
GENEVA, MAY 29 (IFDA) -- The volume of world trade may grow at 3-1/2 to four percent in 1986, with manufactured goods expanding at somewhat faster rates, according to projections by the OECD in its latest economic outlook. Trade prices which have fallen over past year, the OECD says, may begin to increase again from mid-1986, but only very slowly. Non-oil commodity prices are projected to remain weak in real terms over the next 18 months. In 1985, world trade expanded in volume terms at only three percent compared to nine percent in 1984. Outside the OECD area, there was a general slowing in growth of import volumes, with the share of world imports of manufactures of the oil producing countries falling from 15 percent in 1982 to 10 percent. This fall, OECD projects, will intensify in 1986 and 1987, touching seven percent. But the imports of the other third world countries "could accelerate somewhat" as they benefit from fall in oil prices. The trade prospects of the non-oil third world countries face differing trade prospects, according to the projections. As a whole, this group exports as much oil as it imports, and thus the overall direct revenue impact of falling oil prices would be broadly neutral. Terms of trade developments would reflect the fact that the Newly Industrialised Countries (NICS) are large net oil importers, the Low and Middle Income Countries (LMIS) are small net oil importers, while the non-OPEC Oil Producers (OOPS) are large net exporters of oil. With non-oil commodity prices also projected to remain weak in real terms, the LMIS as a group, with large dependence on food and raw material exports, would be affected. Financial considerations would continue to play an important role in the non-oil third world trade. But it seemed unlikely that the oil-importing third world countries would face severe pressures for further austerity measures and cuts in imports. But this is on the assumption that stronger cooperation between national authorities, international organisations and commercial banks, would be successful in preventing an open and generalised financial crisis. The recent declines in interest rates could lighten the interest burden of these countries, but the dollar value of the outstanding debt of the LMIS might rise substantially as the dollar depreciates. The debts of NICS and OOPS would be only slightly affected. The debt-export ratios of the LMIS and OOPS are projected to deteriorate further, while that of NICS might improve. The overall picture of the non-oil third world, OECD suggests, could be stabilisation of trade and current accounts. The NICS would have an overall growth in export revenues enabling them to import more, while the OOPS would face large cutbacks in import volumes, with a simultaneous worsening of trade and current balances. Mexico, the largest non-OPEC oil exporter, presents "a large a downside risk". The LMIS may have only modest growth in import volumes. The slow and partial recovery in non-oil commodity prices and rising import prices would lead to declining terms of trade. China faces a squeeze on imports within next two years, with its imports from OECD area having reaches a vistorical peak. The combination of dollar debt revaluation and continuing large current account deficit has pushed LMIS debt ratios to unprecedented heights, and several of these countries with outstanding commercial loans could face renewed pressures. As for OPEC, the reduction in oil prices could mean an annual one to two percent increase in OECD oil consumption. If this entire increased consumption is absorbed by the OPEC, implied OPEC production would be slightly more than the 17.5 MDB in 1986, expected to rise to 18.5 MDB in 1987. If OPEC output remains above these levels, downward pressure on oil prices would continue. Though spot market crudes are quoted at 10 dollars a barrel, most crudes are changing hands at 15-17 dollars. If oil prices settle at 15, it will create financial problems for some energy-producing firms in the U.S., and indebted-oil-producers, notably Mexico, Nigeria and Venezuela. OECD however thinks the financial strains could be contained, with reallocation of "attention and resources from debt problems of other developing countries". As regards energy-producing firms, at 15 dollars the scale of problems is not large when set against resources of U.S. financial system. But if prices stabilise substantially below 15, the scale of problems would growth in the U.S. Southwest and in other oil-producing regions.