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World Trade Growth to Slow This Year

World trade growth will slow to 4.5 percent this year from 5.5 percent last year and 8.5 percent in 2006, the World Trade Organisation (WTO) said on Thursday.

But financial market turbulence and economic slowdown in some developed countries has not so far disrupted trade, the WTO said in its first forecast for this year.

WTO economists said the forecast was based on expectations of growth in world output of 2.6 percent this year, comprising economic growth in major developed markets of 1.1 percent and growth in developing countries of above 5 percent.

But the trade projections were unusually difficult to gauge this year because of financial market turbulence which has reduced economic growth prospects in the developed markets. "These are uncertain and troubling times for the global economy," WTO director-general Pascal Lamy said in a statement.

"To date, the financial market turmoil, significant price surges and the slowdown of developed economies have not led to a disruption of trade."

But Lamy said protectionist pressures were building and it was necessary to strengthen the global trading system with transparent, predictable and fair rules. A conclusion of the Doha liberalisation round was the best way to do this, he said.

The forecast growth in trade for 2008 of 4.5 percent is the lowest since 2002, and before that levels around or below 4 percent were last seen in the recession of the early 1980s.

The forecast is subject to downside risks, such as the impact on output and monetary policy of resource-driven inflation and financial turmoil, and they may be revised down later this year, chief economist Patrick Low said.

"Up to now the impact of the crisis in financial markets on trade flows has been quite limited," he told a news conference. For instance US merchandise imports in the first two months of this year were 2 percent higher in real terms than a year earlier, while US exports rose 11 percent in that period.

The 2007 figure of 5.5 percent trade growth is slightly lower than its 6 percent forecast made a year ago, the WTO said, noting that the global economy and world trade started to slow in 2007 as demand decelerated in developed regions.

Developing countries took a record 34 percent share of world merchandise trade (exports plus imports) in 2007. This year developing countries and the Commonwealth of Independent States (CIS) comprising Russia and most former Soviet republics are expected to contribute more than one half of global import growth, it said.


Strong commodity prices and reduced reliance on developed markets should help developing and CIS countries maintain high investment and consumption even if commodity prices soften in the second half of 2008, it said.

But the picture among developing countries is diverse, with a doubling in prices of major cereals between mid-2007 and March 2008 threatening developing net food importers with a big rise in their import bill this year, a rise in poverty and political consequences posing grave challenges, the WTO said.

"Whilst we are all concerned about what's happening to commodity prices we should never lose sight of the reality that some countries gain while others lose," Low said.

The decline of the US dollar against the euro and other European currencies inflated the dollar value of trade in 2007. World merchandise exports rose 15 percent to $13.6 trillion and services exports outstripped that, rising 18 percent to $3.3 trillion. In real terms merchandise exports rose 5.5 percent.

Germany remained the world's biggest exporter of merchandise goods in 2007 due to a 20 percent rise in exports, the WTO said, noting that the real appreciation of the euro had differing consequences for export performance in eurozone economies.

China remained the world's second biggest trader, and its trade volumes outstripped the combined trade of Japan and South Korea. China, India and Vietnam each recorded nominal export and import growth of more than 20 percent in 2007.

With US domestic demand possibly shrinking in the first half of this year, US imports are likely to fall further quarter-on-quarter in the first half, the WTO said. But US exports are expected to grow, sustained by a strong real effective depreciation and excess US capacity, it said. - Reuters

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