Monday 29 March 1993
DOWNSIDE RISKS AND UNCERTAIN PROSPECTS IN 1993
Geneva 27 March (Chakravarthi Raghavan) -- World trade growth accelerated in 1992, for the first time since 1988, but faces uncertain prospects of the trend continuing in 1993, according to preliminary estimations by the GATT economists.
Stressing the downside risks ahead, the GATT economists underscore the need to keep markets open and importance of governments seizing the present opportunity to conclude the Uruguay Round.
Stimulated by the economic recovery in North America and sustained strength of import demand in Latin America, Middle East and non-OECD Asia, the growth of world production and trade accelerated in 1992 for the first time since 1988.
At 4-1/2 percent, the expansion in the volume of merchandise trade was considerably faster than the three percent gain of the previous year and close to the average of the past decade.
And while world output growth also picked up, it remained well below the average since the 1982 recession.
"The reversal of the economic slowdown that began in 1989, and in particular the brisk expansion of world trade, were bright spots in a year otherwise characterized by concerns about economic trends in key parts of the global economy." according to the GATT economists.
Though at world level, imports and exports must balance, according to the GATT economists, in 1992 volume-wise world exports grew in 1992 at 4-1/2 percent while imports grew at five percent.
In value terms, world merchandise trade in 1992 was estimated to be 3700 million dollars, compared to 3530 million in 1991 -- a 5- 1/2 percent increase over 1991 compared to the 1-1/2 percent in 1991 over 1990. The value of commercial services traded in 1992 is put at 960 million dollars or an eight percent increase.
The excess of value over volume growth is explained as due to valuation effects -- depreciation of the US dollar vis-à-vis other major currencies, thus automatically increasing dollar value of the world trade.
It was the fourth year in succession when value of trade in commercial services -- including transportation, tourism, telecommunications, insurance, banking and other professional services -- expanded more rapidly than merchandise trade.
This growth is attributed among others to the stimulus to trade in travel and transportation services from the economic recovery in North America and the rebound from the effects of the Gulf War.
Except in 1985, over the last decade there has been an appreciable gap between trade and output growth. This is both due to recent developments and the longer-term changes in the world economy, the GATT report says. These longer-term changes include a rising share of manufactures trade in world trade, the stimulus to trade due to closer investment ties and technological advances in communication and transportation that reduce the 'economic distance' between countries.
The GATT economists note that towards end of 1992, earlier forecasts of output and trade growth in 1993 have been revised downward. While revised figures still foresee an increase in global growth rates relative to 1992, the recovery is expected to be modest and overall rates mask important areas of little or no growth, notably Japan and a large part of western Europe -- including Germany where a GPD decline is forecast and France and Italy.
If the forecasts of a modest pick up in world economic growth in 1993 turn out to be correct, it is plausible to expect an expansion of world trade in real terms or at least equal to that of 1992, GATT says.
The GATT economists however point to the widely shared perception that much of the risk is on the downside. The trade expansion in the second half of 1992 was below the average of the year as a whole. This means trade growth must accelerate moderately in the course of 1993 for the year-over-year gain at least to match that of 1992.
But given the outlook for Western Europe and Japan, which together purchased half of the world imports last year, such an acceleration of growth in 1993 may be difficult to achieve.
All this, the GATT economists argue, point to the need to keep markets open. In recent years trade has been a source of relative strength in an otherwise mostly weak economic environment, especially for slow-growth countries.
Hence risks that trade frictions pose for the current economic recovery are greater than usual, GATT says.
Also, the opportunity to implement a major trade liberalization and an extension of rules safeguarding market access has added advantage when the world is searching for ways to give a non- inflationary stimulus to output and employment.
"In this context," the GATT economists add, "failure of governments to seize the opportunity provided by the Uruguay round, especially when the results are so close at hand, adds to uncertainty in the private sector and makes recovery harder to achieve."
In terms of regional balances, North American recovery, centred on the US, increased the region's demand for imports in volume terms by nearly ten percent, while export growth increased to seven percent -- boosted by the recovery in intra-North American trade and import boom in Latin America.
Despite slowdown in Japan and other Asian economies, Asia's performance on both import and export side remained well above the world average.
Western Europe's exports, despite sluggish growth of intra-West Europe trade, was sustained by recovery in North America and import boom in Latin America and the Middle East, recovery of exports to Asia and continuing demand for West European products in east and central Europe.
But Central and Eastern Europe and the republics of the former USSR saw declining trade volumes for third year in a row. All of the decline was though due to sharp fall in trade of the former USSR. thanks to expanding trade with the West, for the first time since the transition to the market economy, countries in central and eastern Europe saw increased export and import volumes.
In value terms, among the world's 25 leading exporters and importers, China and Hong Kong recorded the strongest expansion in value of trade. France moved to third place among world's leading importers, mainly due decline in value of Japan's imports.
Latin America's import expansion was centred in Mexico and Argentina.
Measured in dollars, the current account imbalances of four of the five leading traders widened.
Japan, largely due to recession, registered an increase in current account surplus -- $118 billion. In the US, due to the recovery, merchandise trade deficit, and the current account deficit, was raised from four to 62 billion, while in Germany the current account deficit rose from 20 to 25 billion due to increased deficit on trade in commercial services. France along among the five leading traders, reported a move from deficit to virtual balance on the current account.
However, the 1992 imbalances relative to GDP clearly are much smaller than five years ago.
But if intra-EC trade is no longer treated as part of world trade --given the entry into force of the Single EC market from 1 January, the EC reaches the spot, ahead of the United States as the leading trade entity in the world.
Removing intra-EC trade from world trade, also lowers world merchandise exports from $3.7 trillion to $2.8 trillion and the share of non-OECD to rise from 30 to 40 percent.