Economic growth and outlook of world trade

ECONOMIC GROWTH & OUTLOOK OF WORLD TRADE- CURRENT SCENARIO

Global trade may grow 7% in 2006, up from last year’s revised 6% expansion, the World Trade Organization (WTO) reported in a forecast but it has also warned about the possibility of uncertainty in reaching the projected growth rate.

In its annual review of trade trends, the WTO said the outlook was based on expected world economic growth of 3.5%, slightly faster than the 3.3% rise in 2005.

The world trade body observed that World trade is expected to benefit from the projected slightly stronger economic growth particularly in the European Union. But it also cited a number of downside risks, including the possibility that US economic growth could falter due to higher real interest rates and energy costs, and that the fledgling EU recovery would not gather momentum.

The global economic situation at the beginning of 2006 remains full of uncertainties. Improved corporate finances and stock market gains seemed to point to a long-awaited recovery in investment in Europe, but private consumption remained fragile indicated in the WTO outlook.

WTO director general Pascal Lamy said in the report that the global trading system was in a period of transition, and the best way to handle it would be to conclude the Doha round of free trade negotiations by the end of the year.

In such a climate of uncertainty, WTO member governments must strengthen the global trading system by making it more equitable and relevant..

World trade, as measured by merchandise exports, had grown by an exceptional 9% in 2004 but slowed to about 6% in real terms last year, reflecting weaker global economic growth in the period.

The final 2005 figure was slightly below the 6.5% predicted this time last year. Fuelled by rising oil prices, Africa, the Middle East, Central and South America and the Common wealth of Independent States, which groups the former Soviet bloc with the exclusion of the Baltic States, have recorded strong export growth in 2005.

The share of world trade of Africa and the Middle East rose to its highest level in two decades. Fuels and other mining products accounted for 16% of global trade, the highest percentage since 1985, while agriculture slipped to a record low of less than 9%.

Exchange rate developments in 2005, including a slight appreciation of the Chinese yuan, appeared to have done little to reduce major current account imbalances.

Germany remained the world’s largest exporter, followed by the United States, China, Japan, and France as in 2004. The United States, Germany and China again took the top three importer spots, but Japan and Britain overtook France to rank fourth and fifth, respectively.