Global trade is an essential factor that improves living standards and employment opportunities and gives consumers access to various global goods and services. Global events affect the demand and supply and, as a result, the prices of goods in the global economy.
According to the World Trade Organization (WTO), global trade growth will be dramatically lower than expected in 2023. WTO economists now predict global merchandise trade volumes will only grow by 1% in 2023 compared to 3.5% growth for the year 2022.
Here are a few challenges that weigh on the market and could influence global trade in 2023.
High Energy Prices
The Russian invasion of Ukraine has reduced household spending and increased manufacturing costs, resulting in high energy prices in Europe. This crisis has pushed the prices up for primary commodities like fuels, food, and fertilizers.
The natural gas prices in Europe increased by 350% year-on-year in August. U.S. prices were also up by 120% in the same month. The reduced supply from Russia has also pushed up the energy costs in Asia.
Rising Interest Rates
The United States fighting inflation by hiking the interest rates can impact global trade. The tightening of monetary policy will affect spending in areas impacted by interest rates, such as housing, autos, and fixed assets. It also will make the US exports more expensive for foreign buyers, which could dampen employment growth.
US interest rates can also affect the borrowing rates of many emerging market countries that borrow on international markets. These emerging market countries are already facing trouble with the sharp increase in energy and food import cost because of the Ukraine war.
China’s Struggle with COVID
As China continues its struggle to control the COVID-19 outbreaks, it faces multiple manufacturing disruptions and lesser external demands. China’s disruptions to export resulting in shortages can further increase inflation internationally.
Growing Insecurities in Developing Countries
Issues in Russia and Ukraine who are among the major suppliers of grains and fertilizers, has raised food security concerns for many countries, especially the low-income countries that spend a significant share of their money on food supplies. Many currencies have fallen against the dollar, making food and fuels even more expensive. The countries affected are responding by reducing their consumption and imports, thus affecting global trade.
Global trade is an essential tool for increasing the supply of global goods and services, and policymakers must strike a balance between combating inflation, maintaining full employment, and advancing important policy goals like transitioning to clean energy.
It should also be noted that the global trade forecast is full of uncertainty, owing to shifting monetary policy in advanced economies and the unpredictable nature of the Russia-Ukraine war.
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