2012 was a remarkably bad year for world trade

In 2012, world trade grew by just 2%, far below the average figure of 6% for the last twenty years, according to a report from the World Trade Organisation (WTO) published last week.

Measured in terms of ‘merchandise trade in volume’, this represented a major reduction as compared to the 5.2% growth seen in 2011. Furthermore, the WTO is not very optimistic in its predictions for 2013, anticipating an expansion of 3.3%.

The organisation is even uncertain about this prediction, pointing to the volatility around the Euro crisis as a continuing threat. Indeed, it has been the Euro-currency countries in particular that have driven down the rate of growth, due to a decline in imports to the European Union (EU) rather than exports. Imports to the EU fell by 5% in 2012, not just from the rest of the world, but also between EU economies.

This fall in economic activity had a disproportionate effect on world trade, both due the size of Europe economically, but also due to the scale of trade between European economies. Crucially, the WTO states that if the EU was treated “as a single entity…the slowdown in world trade in 2012 would not appear as extreme. In this case, world trade growth would be 3.2% in 2012 rather than 2.0%.”

Japan also saw significant volatility in 2012, attributed to difficulties regarding its trade links with China which resulted in an 11% fall in exports during the latter half of the year. The US continued to see reasonable export growth for most of the year, whilst China and much of the developing world saw strong growth; although the declines in commodity prices may be a indication of harder times ahead for the latter group.

The most remarkable aspect of 2012 was the change in the structure of the growth of world trade. It appears that the relationship between the underlying world gross domestic product (GDP) has changed. Normally, world trade grows at twice the rate of world GDP. However, last year they grew at roughly the same rate. The WTO said that it expected a “partial return toward the usual ratio” although very slowly, with world trade still expected to be less than the usual multiple of world GDP growth by 2014.