UNCTAD: Inflation Is Crimping Global Trade and Slowdown Will Worsen in 2023

Global trade growth has “turned negative” after a record year due to inflation, according to the United Nations Conference on Trade and Development (UNCTAD), which expects “geopolitical frictions, persisting inflation, and lower global demand to negatively affect global trade during 2023.”

UNCTAD made the prediction in its global trade update, released on December 13. While global trade is set to reach almost USD 32,000 billion this year, the downswing that began in the third quarter is likely to continue, UNCTAD said. “Geopolitical frictions, persisting inflation, and lower global demand are expected to negatively affect global trade during 2023,” it said.

The forecast comes even as demand for foreign goods “proved resilient” this year, with trade volumes rising 3%, UNCTAD said. Trade in manufactured goods is expected to total USD 25 ,000 billion—up about 10% from 2021—while trade in services is forecast to climb 15% to almost USD 7,000 billion.

“Those record levels are largely due to robust growth in the first half of 2022. Conversely, trade growth has been subdued during the second half of the year,” UNCTAD said.

The value of goods trade fell about 1% in the third quarter from a year earlier, though services trade rose 1.3% in the quarter. The value of all trade is expected to slide in the current quarter. This is partly due to lower prices for primary products in the second half. However, prices of internationally trade intermediate inputs and consumers goods have continued to climb, raising concerns about persisting global inflation.

“While the value of international merchandise trade has stabilized during the second half of 2022, the volume of trade increased during Q3 2022 and is expected to continue increasing during Q4,” UNCTAD said. “Positive growth in the volume of international trade indicates resilience of global demand.”

UNCTAD listed negative factors for 2023 as lower economic growth due to high energy prices, rising interest rates, sustained inflation in many economies, and negative global economic spillovers from the war in Ukraine. It also noted high prices of traded goods—which will crimp demand for imports—and concerns about debt sustainability.

Positive factors include improvements in the logistics of global trade following the challenges created by the COVID-19 pandemic and the realization of trade agreements, including the Regional Comprehensive Economic Partnership and the African Continental Free Trade Area, which should “provide some momentum for international trade,” UNCTAD said.