Global trade tumbled 13% last year to $16.5 trillion in value terms, from $19 trillion in 2014, wreaking havoc on commodity producers, particularly vulnerable developing countries.
In volume terms, global trade remained flat in 2015. It is expected to grow by 2.8% this year and 3.6% next year, subject to several downside risks, according to the World Trade Organization’s (WTO’s) trade figures released on Thursday.
The risks include the slowing Chinese economy, continued volatility in the financial market, and persisting negative business sentiment.
Despite notching up high economic growth as compared to other countries, particularly China, India’s performance in merchandise trade remained dismal. India’s exports of goods fell by 17.2% in dollar terms as compared to a 2.9% drop in China’s exports.
India’s imports also fell by 15.3% in dollar terms, thanks largely to a nearly 60% drop in oil prices, while China’s imports went down by 14.1%. India’s overall trade deficit last year was $25 billion.
Significantly, India’s exports of commercial services registered a modest growth of 1.2% last year as compared to a drop of 3.4% in China’s case. India also saw a drop in the imports of commercial services by 1.1% last year. with overall surplus of $28 billion.
“Trade is still registering positive growth, albeit at a disappointing rate,” WTO director general Roberto Azevedo said. This is going to be the fifth consecutive year of growth below 3%, he added.
The divergent movements in volume and value remain a source of concern which “could undermine fragile economic growth in vulnerable economies”, Azevedo acknowledged.
The drop in dollar value of global trade was largely due to strong fluctuations in commodity prices and exchange rates, “which were in turn driven by slowing economic growth in China”, resilient oil production in the US, and divergent monetary policies across leading economies.
In addition, volatility in currency movements, including the dollar’s appreciation by 20% last year, and poor consumer confidence may have contributed to reduced global demand for certain durable goods, according to WTO economists.
In contrast to the sharp decline in the trade in goods, global trade in commercial services registered a smaller drop of 6.4% in dollar terms to $4.7 trillion.
Leading Asian economies, which have contributed to growth in global trade in recent years, imported much less last year as compared to the US and the European Union.
Although the current trade growth is reminiscent of the 1980s, there are still significant differences between the major advanced countries and developing countries.
The US and the EU, for example, accounted for around 70% of the total global imports in the 1980s as compared to 57% now, Azevedo said.
In sharp contrast, the three major developing countries—China, India and Brazil—now account for 14% of the total global imports as compared to 3% in the 1980s. “That is a very significant change in global imports,” the WTO chief said.
The relationship between global trade and gross domestic product (GDP) growth has undergone a change too. According to the WTO forecast, 2016 will be the fifth year that world trade will grow at roughly the same level as GDP in a 1:1 ratio.
Until the 2008 financial crisis, the ratio between world trade and GDP growth was 2:1. In all probability, the relationship between global trade and GDP growth is likely to be around 1.5:1 in the near future, according to Azevedo.
Azevedo urged WTO members to roll back trade restrictions and adopt strong job-creation measures to reverse the bleak trade growth.