World Trade Will Drop 9% in 2009: WTO

25 March 2009

World trade flows will fall by roughly 9 percent this year – the biggest drop in more than 60 years – thanks to the ongoing economic downturn, the WTO said Monday. 
Global trade grew by just 2 percent in 2008, not the 4.5 percent that was forecasted a year ago, the WTO said, attributing the over-estimation to the unexpected and very sharp drop in global production in the final quarter of 2008.
The marked drop in trade has been triggered in part by a rapid contraction in the availability of credit to finance the movement of imports and exports, the report concluded. A decline in asset prices, weakened demand, and decreased production also contributed to the decline.
“Production for many products is sourced around the world so there is a multiplier effect — as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries,” said WTO Director-General Pascal Lamy.
Growth in real global output amounted to 1.7 percent last year, down from 3.5 percent the year before. In 2009, the WTO predicts world production will fall by between 1 percent and 2 percent, marking the first decline in global output since the 1930s.
WTO Director-General Pascal Lamy warned that as demand falls sharply overall, trade will tumble even further.
“Trade can be a potent tool in lifting the world from these economic doldrums. In London G20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective,” said Lamy, referring to a gathering of key heads of state that is set for 2 April.
Many government-led programs aim to address the economic crisis through policies such as bank bailouts and mortgage assistance for homeowners. But, the WTO reports warned, conventional monetary policy may be reaching the limits of its effectiveness, with interest rates in the United States and elsewhere approaching zero.  Economic recovery may now depend on the effectiveness of proposed fiscal stimulus plans.
ICTSD reporting. 

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