WTO cuts world trade forecast as manufacturing slowdown bites Newsflash: the World Trade Organization has slashed its estimate for exports growth around the world this year, due to a slowdown in global manufacturing. The WTO now expects world trade volumes to grow by just 0.8% this year, down from a forecast of 1.7% in April. Growth is expected to pick up to 3.3% in 2024. The WTO says a slump in goods trade that began in the fourth quarter of 2022 is continuing, as hopes of a pick-up in demand have been dashed. So, trade is expected to grow more slowly than GDP this year but faster next year. In its latest report on global trade, the WTO says: World trade and output slowed abruptly in the fourth quarter of 2022 as the effects of tighter monetary policy were felt in the United States, the European Union and elsewhere, but falling energy prices and the end of Chinese pandemic restrictions raised hopes of a quick rebound. So far, these hopes have not materialized, as strained property markets have prevented a stronger recovery from taking root in China, and as inflation has remained sticky in the United States and the EU. Together with the after-effects of the war in Ukraine and the COVID-19 pandemic, these developments have cast a shadow over the outlook for trade in 2023 and 2024. Closing post Time to wrap up…… The World Trade Organization has halved its forecast for exports growth around the world this year, blaming a slowdown in manufacturing and rising geopolitical tensions. The WTO also flagged that trade through European ports has slowed this year, and that trade in intermediate goods (used to make final products for sale) has weakened – as supply chains fragment. UK construction firms have suffered their steepest decline in output since May 2020, with housebuilding work slumping last month. Several experts warned that the cancellation of the northern leg of HS2 to Manchester will further hurt construction firms. The UK’s competition watchdog has launched an investigation into cloud computing, after Ofcom concluded that Amazon and Microsoft’s dominance was a concern. In the economic world, fewer Americans filed new jobless claims than expected last week, which could encourage the US Federal Reserve to raise interest rates in November. But bond markets have been calmer today, after yesterday’s selloff sent government borrowing costs to multi-year highs. While shares in Metro Bank have tumbled by a quarter, as it seeks to raise funds – perhaps up to £600m – to shore up its balance sheet. Firms will hesitate to invest in UK after Sunak’s climate U-turns, says Mark Carney Rishi Sunak watering down the UK’s climate commitments has damaged Britain’s position on the world stage for business investment, according to the former Bank of England governor Mark Carney. In highly critical comments, Carney indicated that global companies would now think twice about locating their activities in the UK after Sunak pushed back key net zero deadlines and sanctioned new oil and gas drilling. Speaking to Nick Macpherson, a former permanent secretary to the Treasury, at an online event, Carney said major businesses he had spoken to prioritised countries with clear environmental commitments before making investment decisions. He said: “In my conversations with companies around the world, their first conversation about location is: ‘Am I getting clean power?’ It doesn’t make sense to relocate without green power. You start throwing that into doubt, [and] it becomes a lot more complicated discussion.” Citing several countries that have highlighted the availability of clean power to international businesses, the former Bank governor added: “The UK was in that camp, now it’s blurred around it.” After a choppy day, share in Metro Bank have closed down 25.7% tonight at 37.5p. That’s its biggest one-day fall since 2019, as investors digest the news it is it considering raising funds or selling off assets in a bid to shore up cash. British Airways has reached a deal in principle for pay increases for its pilots for the next few years. The airline announced “an agreement in principle” for the pay award from 2023-27. A spokesperson said: “The British Airline Pilots’ Association (Balpa) will now ballot its members on the agreement in principle. “The pay offer builds on a number of pay and reward changes made in 2022 to support colleagues throughout the business at a time of ongoing cost-of-living pressures.” As explained earlier (see 12.56pm), the deal could avoid a repeat of the strikes which gripped BA in 2019. Unite union warns of winter of industrial action by council workers Back in the UK, unions are warning that local government workers could hold “a winter of action” over low pay. Officials from the Unite union are meeting in Wales today and tomorrow to discuss industrial action, after 23 councils across the UK either announced strike dates or are preparing to do so. There is already strike action at both Wrexham and Cardiff councils, for example, which is due to continue until the end of November. Unite says it is determined to tackle poverty pay rates, with members having rejected wage offers that didn’t keep pace with inflation. Unite general secretary Sharon Graham said: “The council leaders are wrongly claiming they can’t negotiate locally. It’s complete nonsense and the local government employers know it. Unite has already successfully negotiated pay rises for workers in Tower Hamlets and Newham in London. It’s time for other councils to listen and learn.” German export fall raises recession risks A drop in exports in Germany have highlighted that trade in Europe’s largest member is weakening. German exports fell by 1.2% in August, new figures from statistics body Destatis shows, while imports fell by 0.4%. The drop in trade increases that risk that Germany’s economy fell back into recession in the third quarter of this year, fears ING. Carsten Brzeski, ING’s global head of macro, warns that German exports remain “stuck in the twilight zone between recession and stagnation”. He adds: Since the start of 2022, net exports have been a drag on the economy in four out of six quarters. Supply chain frictions, a more fragmented global economy and China increasingly being able to produce goods it previously bought from Germany, are all factors weighing on the German export sector. The cooling of global demand is currently worsening the structural problems and the weakening of the euro since the summer is still too small to have any significant impact on exports. As a result, trade is no longer the strong resilient growth driver of the German economy that it used to be, but rather a drag. The WTO’s latest trade report also shows that trade in European ports had declined this year, but picked up at China’s ports, following the ending of pandemic restrictions at the end of 2022. The WTO monitors container traffic through 92 ports around the globle, which account for 64% of world merchandise trade, making it a reasonable proxy for global container throughput. The WTO explains the data may indicate that Europe’s economic stagnation is a bigger threat to trade growth than China’s slowdown. In general, throughput tracks merchandise trade volume quite closely. This is shown in Chart 12 together with traffic through Chinese and European ports. While throughput has stagnated at the global level, traffic in Chinese ports has continued to grow while shipment through European ports had declined. This suggests that stagnation in Europe may pose a greater risk to the trade outlook than China’s economic slowdown. The index does not show US ports separately, but data from the port of Los Angeles are suggestive. Throughput there fell 48% between July 2022 and February 2023, then rose 71% through June. This suggests that US trade with Asia is picking up again after slumping in the second half of last year. The WTO is concerned that the share of global trade made up by “intermediate goods” – which are used to make final products for sale – has fallen in the last year. In the fourth quarter of 2022 the ratio fell firmly below 50% and has remained there through the first half of 2023. The shift is not dramatic, the WTO points out, as the intermediate goods share averaged 51.0% over the previous three years. But it may be a sign that trade is reorienting along regional and political lines, following rising tensions due to the Ukraine war, and between the US and China. The WTO says: Whether the decline is due to geopolitical tensions or the recent global economic slowdown is unclear. Whatever the reason, the data suggest that goods continue to be produced through complex supply chains, but that the extent of these chains may have reached their high-water mark. The WTO’s latest forecasts predict that North America will register the strongest export growth of any region in 2023, at 3.6%. That is followed by the CIS region (the Commonwealth of Independent States created after the collapse of the USSR), where exports are forecast to increase by 3.0%. Most other regions would only see modest export growth, except for Africa, where exports are expected to contract by 1.5%. WTO warns global economic fragmentation threatening trade The downgrading of world trade growth prospects this year is worrying, says WTO Director-General Ngozi Okonjo-Iweala: She is concerned that WTO economists see some signs that geopolitical tensions are leading to trade fragmentation linked to geopolitical tensions. Okonjo-Iweala says: “The projected slowdown in trade for 2023 is cause for concern, because of the adverse implications for the living standards of people around the world. Global economic fragmentation would only make these challenges worse, which is why WTO members must seize the opportunity to strengthen the global trading framework by avoiding protectionism and fostering a more resilient and inclusive global economy. The global economy, and in particular poor countries, will struggle to recover without a stable, open, predictable, rules-based and fair multilateral trading system.” So far this year, merchandise trade volumes were down 0.5% year-on-year in the first half of 2023. However, the World Trade Organisation expects a “modest pickup” in the second half of the year, as this chart shows: But, the WTO warns there are risks to its forecast, including: ….a sharper than expected slowdown in China and a resurgence of inflation in advanced economies, which would require keeping interest rates higher for a longer period. On the other hand, growth could also exceed expectations if inflation comes down quickly, allowing an early exit from contractionary monetary policies WTO cuts world trade forecast as manufacturing slowdown bites Newsflash: the World Trade Organization has slashed its estimate for exports growth around the world this year, due to a slowdown in global manufacturing. The WTO now expects world trade volumes to grow by just 0.8% this year, down from a forecast of 1.7% in April. Growth is expected to pick up to 3.3% in 2024. The WTO says a slump in goods trade that began in the fourth quarter of 2022 is continuing, as hopes of a pick-up in demand have been dashed. So, trade is expected to grow more slowly than GDP this year but faster next year. In its latest report on global trade, the WTO says: World trade and output slowed abruptly in the fourth quarter of 2022 as the effects of tighter monetary policy were felt in the United States, the European Union and elsewhere, but falling energy prices and the end of Chinese pandemic restrictions raised hopes of a quick rebound. So far, these hopes have not materialized, as strained property markets have prevented a stronger recovery from taking root in China, and as inflation has remained sticky in the United States and the EU. Together with the after-effects of the war in Ukraine and the COVID-19 pandemic, these developments have cast a shadow over the outlook for trade in 2023 and 2024. Back in the UK, Metro Bank has denied that its CEO and chairman were hauled in City regulators today for an urgent meeting (see earlier post). Instead, chairman Robert Sharpe has attended a “long-standing” meeting with the UK’s Prudential Regulatory Authority this morning, which had aready been in the diary. CEO Dan Frumkin was not there, they say, despite reports earlier that he was going to be, Reuters adds. The relatively small increase in US jobless claims last week (see previous post) could embolden the US Federal Reserve to raise interest rates again at its next meeting, in early November. Tom Hopkins, portfolio manager at BRI Wealth Management, explains: “Initial Jobless Claims in the United States increased to 207,000 in the week ending September 30th, an increase of 2000 from the previous week and marginally below consensus expectations of 210,000. “The data continues to add to evidence that the US labour market remains at historically tight levels. This will also add resilience to the Federal Reserve’s aggressive tightening cycle and supports the narrative of ‘higher for longer’ interest rates. Unless we see a material weakening in the US labour market and economy, it could add potential for another rate hike in November.”