Macroscope | Positive spin given to global economic outlook by WTO, IMF isn't justified
The aftermath of austerity cuts combined with deflation and corporate restructuring cast long shadows over sentiment and growth potential
It is often said that healthy trade flows help the global economy go round. The general pattern for decades has been trade expansion far outstripping global growth, but this has all unravelled in recent years as economic downturn, financial turmoil and geopolitical risks have all taken their toll. Global trade flows are barely keeping pace with world GDP growth.
It could spell bad news for the major trading nations like Germany, China, Japan and the US, all relying on better recovery in the world economy for a long-awaited upturn in business conditions. It could also mean a lot of difference to bullish expectations in world stock markets right now.
Supranational bodies like the International Monetary Fund and the World Trade Organisation are doing their best to put a positive spin on the outlook, but reading between the lines of their latest forecasts, there are good reasons to temper down the optimism.
World trade growth has been stuck in the doldrums for a number of years now, measuring 2.8 per cent in 2014 and averaging only 2.4 per cent for the last three years. This is well below the pre-crisis annual growth average of 6 per cent. In its April update, the WTO expects world merchandise trade to grow by 3.3 per cent this year and for a further uptick in trade growth to 4 per cent in 2016.
Meanwhile, the IMF Spring forecasts project global GDP to grow by 3.5 per cent in 2015, with growth expected to accelerate marginally to 3.8 per cent in 2016.
The IMF warns that growth will be uneven, with the outlook saddled with downside risks.
There may be sound reasoning behind expectations for modest recovery, but it is hard to reconcile the optimism with the raft of problems waiting in the wings. The positive impact of much cheaper oil prices and extremely accommodative monetary policies around the world has almost played out. With interest rates running close to zero in the major economies and fiscal capabilities overstretched, there is little else that global policymakers can do to inject much more stimulus into recovery efforts.