World trade is expected to grow by 4.7% in 2014 and at a slightly faster rate of 5.3% in 2015, World Trade Organisation (WTO) economists said on Monday, upgrading their growth prediction for the year from a preliminary forecast of 4.5% trade growth for the 12 months.

This trade forecast was premised on an assumption of 3% growth in world gross domestic product (GDP) at market exchange rates, while the forecast for 2015 assumed output growth of 3.1%.

Although the 2014 forecast of 4.7% was more than double the 2.1% increase of last year, the organisation cautioned that it remained below the 20-year average of 5.3%. For the past two years, trade growth had averaged only 2.2%.

The WTO said in a report that the sluggish pace of trade growth in 2013 was the result of a combination of flat growth in import demand in developed economies, which registered import growth of 0.2%, and moderate import growth in developing economies, which expanded by 4.4%.

MARGINAL EXPORT GROWTH

On the export side, both developed and developing economies only managed to record small, positive increases, with developed economies posting export growth of 1.5% for the year and developing economies 3.3%.

“For the last two years trade growth has been sluggish. Looking ahead, if GDP forecasts hold true, we expect a broad-based but modest upturn in 2014 and further consolidation of this growth in 2015,” commented WTO director-general Roberto Azevêdo.

He added it was “clear” that trade would improve as the world economy improved, but cautioned that simply waiting for an automatic increase in trade would not be enough for WTO members.

“We can actively support trade growth by updating the rules and reaching new trade agreements. The deal in Bali last December illustrates this,” Azevêdo held.

At the ninth Ministerial Conference, held in Bali, Indonesia, in December last year, global trade Ministers adopted the ‘Bali Package’, a series of decisions aimed at streamlining trade, allowing developing countries more options for providing food security, boosting least-developed countries’ trade and helping development more generally.

“Concluding the Doha Round would provide a strong foundation for trade in the future and a powerful stimulus in today’s slow growth environment. We are currently discussing new ideas and new approaches which would help us to get the job done – and to do it quickly,” Azevêdo said, referring to the latest round of ongoing trade negotiations among the WTO membership.

TEPID SHOWING

According to the organisation, several factors contributed to the weakness of trade and output in 2013, including the lingering impact of the European Union (EU) recession, high unemployment in euro-area economies and uncertainty about the timing of the Federal Reserve’s (Fed’s) winding down of its monetary stimulus in the US.

The latter contributed to financial volatility in developing economies in the second half of 2013, particularly in certain emerging economies with large current account imbalances.

Meanwhile, recent business surveys and industrial production data pointed to a firming up of the recovery in the US and Europe in early 2014.

“The gradual improvement of US employment data has allowed the Fed to proceed with its planned tapering of their third round of quantitative easing, while the outlook for the EU has also improved.

“However, growth [in the eurozone] will remain uneven as long as peripheral EU economies continue to underperform core ones,” the organisation stated.

Meanwhile, output growth in Japan was expected to be slightly lower this year, as planned fiscal consolidation was implemented.

Despite having hit a soft patch recently, the WTO believed that developing economies – including China – should continue to outpace developed economies in terms of GDP and trade growth in the coming year, but some could encounter setbacks, particularly those most exposed to the recalibration of monetary policy in developed countries.

DOWNSIDE RISKS

Overall risks to the trade forecast were still mostly on the downside, but there was some upside potential, particularly since trade in developed economies was starting from a low base.

“However, volatility is likely to be a defining feature of 2014 as monetary policy in developed economies becomes less accommodative,” the WTO said.

According to the organisation, the risk factors facing some developed economies had receded “considerably” since last year, including the sovereign debt crisis in Europe and fiscal brinksmanship between the executive and legislative branches of government in the US.

In contrast, developing economies were now the focus of several mounting risks, including large current account deficits – such as in India, Turkey and South Africa – currency crises, overinvestment in productive capacity and rebalancing economies to rely more on domestic consumption and less on external demand.