The post-pandemic rebound in global trade, which marked a period of recovery over the past two years, is now facing a significant slowdown, as per the latest report by Fitch Ratings.
The agency forecasts a growth rate of only 1.9 percent for international trade this year, a significant drop from the 5.5 percent growth observed in 2022.
Fitch Ratings suggests that the slowdown in trade growth reflects the stalling of globalization, with several factors contributing to this trend.
Additionally, the world economy is projected to grow by 2 percent in 2023, down from 2.7 percent recorded last year.
Factors Influencing the Trade Slowdown
The report highlights several factors that have contributed to the deceleration of global trade.
Firstly, tighter monetary policies and declining fiscal support have played a role in dampening trade activity. Secondly, the resurgence of the services sector, which contributes less to trade than the goods sector, has also impacted overall trade growth.
Moreover, the volume of trade in goods is declining, with gains in services trade only partially offsetting this dip as the tourism and transportation sectors recover.
Supply-chain bottlenecks, which previously hindered trade, have been mostly resolved. Furthermore, the international specialization of services has decreased, accounting for only 22 percent of total trade.
Effects on Industrial Production and Global Economy
The decline in demand for goods has resulted in a rapid cooling of industrial production.
According to the credit rating agency, their forecast of a flattening trade-to-GDP ratio contrasts with the steady rise from the 1990s to the mid-2000s. However, the report also indicates that while some evidence of trade redirection is emerging, there is currently no indication that globalization is reversing completely.
The forecast comes at a time when global trade has faced significant disruptions due to geopolitical events like Russia’s invasion of Ukraine.
Additionally, the trade war between the United States and China has escalated, leading to targeted measures against sectors such as chipmakers and high-tech industries.
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