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Prospects for the global economy have darkened since the outbreak of war in Ukraine on February 24, prompting World Trade Organization (WTO) economists to reassess their projections for world trade over the next two years.
The organization now expects merchandise trade volume growth of 3.0% in 2022 - down from its previous forecast of 4.7% - and 3.4% in 2023, but these estimates are less certain than usual due to the fluid nature of the conflict.
The most immediate economic impact of the crisis has been a sharp rise in commodity prices. Despite their small shares in world trade and output, Russia and Ukraine are key suppliers of essential goods including food, energy, and fertilizers, supplies of which are now threatened by the war. Grain shipments through Black Sea ports have already been halted, with potentially dire consequences for food security in poor countries.
The war is not the only factor weighing on world trade at the moment. Lockdowns in China to prevent the spread of COVID-19 are again disrupting seaborne trade at a time when supply chain pressures appeared to be easing. This could lead to renewed shortages of manufacturing inputs and higher inflation.
With little hard data on the economic impact of the conflict, WTO economists have had to rely on simulations to generate reasonable assumptions about GDP growth in 2022 and 2023. Current estimates based on the WTO Global Trade Model capture (1) the direct impact of the war in Ukraine, including destruction of infrastructure and increased trade costs; (2) the impact of sanctions on Russia, including the blocking of Russian banks from the SWIFT settlement system; and (3) reduced aggregate demand in the rest of the world due to falling business/consumer confidence and rising uncertainty.
Under these assumptions, world GDP at market exchange rates is expected to grow by 2.8% in 2022, down 1.3 percentage points from the previous forecast of 4.1%. Growth should pick up to 3.2% in 2023, close to the average rate of 3.0% between 2010 and 2019. Output in the Commonwealth of Independent States (CIS) region - which excludes Ukraine - is expected to see a sharp 7.9% drop, leading to a 12.0% contraction in the region's imports.
