WTO cites China, US, refugee costs as risks to trade growth

GENEVA — World trade will grow by 2.8 per cent this year and could be pegged back further by a US interest rate rise, China's economic slowdown or Europe's refugee crisis, the World Trade Organisation (WTO) said on Wednesday.

The forecast, revised down from a 3.3 per cent forecast made in April, means 2015 will be the fourth year in a row with trade growth of less than 3 per cent, half the annual average in 1990-2008 before the financial crisis hit.

The WTO's forecast implies growth will quicken this year, from 2.5 per cent growth in 2014. But its expectations have repeatedly proved overly optimistic as hopes of global economic recovery have receded.

There were still big potential risks to its latest numbers.

"These include a sharper-than-expected slowdown in emerging and developing economies, the possibility of destabilising financial flows from an eventual interest rate rise by the US Federal Reserve, and unanticipated costs associated with the migration crisis in Europe," the WTO indicated in a statement.

The Chinese slowdown already caused the WTO to cut its 2015 forecast for growth in Asian imports to 2.6 per cent, down from a 5.1 per cent projection in April, and Asian exports to 3.1 per cent from the previous 5 per cent forecast.

China's falling demand was one major reason why global trade shrank in the first two quarters of 2015, contracting from the previous quarter by an average of 0.7 per cent. Falling demand in Brazil and oil and commodity prices also contributed.

However, year-on-year global growth for the year to date is still positive, at 2.3 per cent from the same period of 2014.

In 2016, world trade is expected to grow by 3.9 per cent, a revision of the WTO's previous forecast of 4 per cent.

That rebound is predicated on Asian import growth bouncing back from 2.6 per cent in 2015 to 4.3 per cent, as well as Latin America flipping from a 5.6 per cent import contraction this year to 5.7 per cent import growth in 2016.

The WTO forecasts covered trade in goods, but not trade in services.

Separately, the former head of the WTO said on Wednesday that Russia's push to boost sales of homegrown products while imports are hit by sanctions will be economically damaging if past experience is any guide.

Pascal Lamy, speaking at the Reuters Russia Investment Summit, said that in the short-term domestic producers could benefit but in the long run consumers are likely to lose out because prices for products will be higher.

Trade between Russia and Western countries is restricted by sanctions imposed by both sides over the conflict in Ukraine, which has dragged relations to their lowest level since the Cold War.

Russia's government has made a big push for "import substitution" — encouraging domestic firms to switch focus to replacing imports that, because of sanctions, are no longer available on the Russian market.

"In most of the cases I have known import substitution policies have failed," said Lamy, who was director general of the WTO for two terms from 2005 until 2013. "They degrade the efficiency of their economy."

"It'll work in terms of increasing local production. But that is not the fundamental point. The fundamental point is whether the consumer has value for his or her money," he indicated at the Summit, held at the Reuters office in Moscow.

Prices vs patriotism

A surge in patriotism in Russia triggered by the conflict in Ukraine might go some way to mitigating consumers' dissatisfaction over higher prices, Lamy said, but he questioned how long that would last.

Russia has challenged the Western sanctions imposed on it over Ukraine, while questions have also been raised about whether Russian countersanctions, banning imports of many Western foodstuffs, are in accordance with WTO rules.

Lamy declined to comment on what would be the outcome of the different sets of litigation over sanctions.

But he said that Western sanctions, which focused on travel bans, financial services and weapons, had been carefully calibrated so as not to breach international disciplines on trade.

Russia's counter-measures, meanwhile, were trade sanctions. He added that WTO rules say such sanctions are not allowed, except on grounds of national security.

"The Russian sanctions are import bans. They are selective, they target some countries and not others, which in WTO terms is discrimination," he indicated.

Lamy was head of the WTO when Russia entered the organisation in 2012 after years of negotiations.

Since joining, Russia has been embroiled in multiple trade disputes with fellow members. The European Union accuses Russia of restrictive practices to protect its carmakers, and of putting what it calls excessive import duties on paper and palm oil.

Lamy though said that such disputes were a normal part of WTO membership and Russia was no more problematic than some other new members had been.

"I think it was the right thing to do," he said on the decision to admit Russia to the WTO. "It's good for Russia, good for the WTO."