US Recovery, Asian Surge Will Boost World Trade 7.5%: WTO

GLOBAL trade is expected to grow by 7.5 per cent this year following the sharp economic recovery in the United States and unexpected surge in the performance of key Asian trading giants last year, according to the World Trade Organization's (WTO) latest forecast released yesterday.

'Clearly, the improved economic situation in the US and Asia has given an important boost to world trade,' said WTO director-general Supachai Panitchpakdi.

Last year, international trade grew by about 4.5 per cent in real terms, which was stronger than expected when the dangers from severe acute respiratory syndrome (Sars) and the Iraq war cast a pall over the international economy.

Global exports in goods registered a jump of 16 per cent in dollar terms last year reaching a high of US$7.3 trillion, while commercial services rose by 12 per cent to US$1.8 trillion.

China continues to be the locomotive in Asia's growth notching a 40 per cent increase in imports and 35 per cent rise in exports last year. In 2003, China became the third largest importer and fourth largest exporter.

Similarly, Singapore and other Asian economies are continuing to perform well this year with the island's economy registering an impressive growth in both exports and imports in the first quarter. The island state was ranked 16th largest exporter and 15th largest importer in the world last year.

The IT sector, which is the mainstay of South-east Asian economies like Singapore, is also undergoing a structural change and much would depend on how these economies are able to adjust to intense competition from China.

The prospects for a robust growth in international trade hinges on three significant 'downside risks', argued WTO chief economist Patrick Low.

First, the rise in the 'twin deficits' - the budget and current account deficits - in the US could adversely affect international trade, Dr Low said.

The US current account deficit is expected to touch a new high this year from US$542 billion last year. A sharp rise in the US current account deficit could destabilise its external trade by slowing down imports or through a decline in houses or stock prices.

Second, the leading economies in Western Europe that are suffering from weak demand and delayed economic recovery could wreck the international trade climate. If key West European economies contract in their external trade due to a sharp appreciation of the euro and consumer expenditure is down due to uncertainty about the 'financial reforms in the pension and health systems that could lead to a marked rise in precautionary savings', then world trade performance would be dampened.

And third, the volatile movements in oil prices, which touched almost US$34 per barrel last week, can cause a dent in the international economy and trade. With oil markets having defied most projections that had assumed a fall in average oil prices this year, uncertainty in the performance of key economies like the US cannot be underestimated, said Dr Low.

In the services trade, Asian economies such as Japan, Singapore and Taiwan and North American countries such as Canada underwent a change in their rankings due to gains made by leading commercial service traders in Europe last year.

Japan, Canada, Singapore and Taiwan, for example, fell two notches, while Belgium, Sweden and Greece moved up two rungs last year. China, however, became the largest exporter of commercial services among developing countries.