Geopolitical Headwinds Forecast: Global Trade Set to Decline by 5% in Current Year

In a recent report from the Geneva-based United Nations Conference on Trade and Development (UNCTAD), global trade is anticipated to experience a significant downturn in 2023, with a projected decline of approximately 5% from the record-high figures of the previous year. Infostride News brings you insights into the factors contributing to this economic shift and the potential repercussions for international commerce.

According to UNCTAD, the total value of goods and services traded globally is expected to drop to $30.7 trillion, down from $32.2 trillion in 2022. A substantial $2 trillion, constituting an 8% decline in merchandise trade, is identified as the primary driver behind this anticipated contraction. The current economic landscape is marked by high borrowing costs, escalating tensions between the United States and China redirecting global supply chains, and the implementation of policies that restrict cross-border trade.

Infostride News underscores that services trade is not immune to these challenges, but it is projected to see a modest increase of $500 billion, or approximately 7%, compared to the previous year. The report highlights how lower costs for goods impacted by high inflation in the preceding year contribute to the overall decline in trade value.

Despite the reduction in the value of traded goods, UNCTAD emphasizes a slightly positive trend in the volume of international trade, suggesting a resilient global demand for imported products. The geopolitical alignment of countries is becoming increasingly influential, with geopolitically aligned nations engaging in more trade among themselves while those in disagreement participate in fewer bilateral transactions.

The agency acknowledges several factors clouding the outlook for global trade in the coming year, emphasizing the highly uncertain and generally pessimistic forecast. Persistent geopolitical tensions, elevated levels of debt, and widespread economic fragility are expected to exert negative influences on global trade patterns.

Geopolitical factors, including the conflict between the Russian Federation and Ukraine, are identified as the most significant risks negatively affecting international trade in 2023. The report also anticipates that interest rates will remain relatively high in many economies as central banks strive to address persistent inflationary pressures.

Infostride News notes that commodity prices are expected to remain above pre-pandemic averages, especially for energy, food, and metals, according to UNCTAD. The current record levels of global debt, coupled with high-interest rates, are forecasted to continue negatively affecting the macroeconomic conditions of many countries.

On a positive note, UNCTAD points out several factors that could potentially mitigate the negative trends. These include an improved economic outlook for major economies, a decrease in shipping costs, a weakening of the US dollar, and a rising demand for services. Despite the uncertain outlook, these positive factors are expected to compensate for the challenges faced by global trade.

Infostride News highlights UNCTAD’s expectation that international trade patterns in 2023 will be shaped by “near-shoring” and “reshoring” strategies. This involves relocating production processes closer to target markets and bringing manufacturing back to home countries, as companies focus on enhancing supply chain resilience in the face of ongoing economic uncertainties.