Pricing has come down sharply in ocean transport. Although some have seen this as brewing disaster for global trade, that isn’t the case. At least not yet, according to the World Trade Organization. In fact, in the current year, trade volumes are better than expected.
However, next year is a different matter. The organization expects some growth, but a third of what they had previously thought.
Good news first. “WTO economists now predict global merchandise trade volumes will grow by 3.5% in 2022—slightly better than the 3.0% forecast in April,” the organization said.
But things are starting to slow, and the brakes will really feel pressure in 2023.
“World trade is expected to lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks weigh on the global economy,” the WTO predicts. Instead of a 3.4% growth in 2023, the forecast is more like 1%. Global GDP, which the WTO had previously expected to hit 3.3% next year, is more likely to be at 2.3%.
Different areas will see slowdowns for varying reasons. Europe is struggling with energy prices that make escalations in gas and electric in the U.S. seem like nothing. The result is reduction of consumer spending and increased manufacturing costs.
In the U.S., monetary policy attempting to head off inflation is the culprit. Until the Fed sees clear signs that price increases have slowed to a manageable level, expect the rate increases to continue. That hits “interest-sensitive spending in areas such as housing, motor vehicles and fixed investment.” And, although not mentioned, commercial real estate.
Then, in China, responses to COVID-19 outbreaks drive production disruptions that are meeting external demand. Finally, growing import bills for fuels, food and fertilizers could lead to food insecurity and debt distress in developing countries.
All these tie together in a global economy. For the U.S., problems in China’s manufacturing sector mean ongoing supply reductions, and for CRE, a lot of building components come out of China. Less regular supply becomes higher prices and spottier availability, affecting project costs and completion times.
Europe’s problems because less orders from U.S. manufacturers, reducing economic activity and profits here—not good for CRE either.
There’s also a lot of uncertainty in the forecasts. “If current assumptions hold, trade growth in 2022 could end up between 2.0% and 4.9%,” says the WTO. “If the downside risks materialize, trade growth in 2023 could then be as low as -2.8%. If the surprises are on the upside, however, trade growth next year could be high as 4.6%. Trade could also finish outside of these bounds if any of the underlying assumptions change.”