West Asia crisis: WTO cuts trade outlook, India to buck trend

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Last Updated14/10/2024

The World Trade Organisation (WTO) on Thursday reduced its growth forecast for the volume of global merchandise trade in 2025 to 3 per cent from 3.3 per cent.

The World Trade Organisation (WTO) has downgraded its global merchandise trade growth forecast for 2025 to 3% from an earlier estimate of 3.3%, citing escalating conflicts in West Asia.
The ongoing conflict has severely impacted the Red Sea shipping route, which is crucial for global trade, and has heightened fears of further disruptions.

Red Sea Shipping Route Blocked: The conflict in West Asia has blocked the Red Sea shipping route for nearly a year, creating concerns about global trade flows. The WTO warned that a broader intensification of this conflict could lead to further disruptions in shipping and rising energy prices, which would negatively impact global economic growth.
Energy Supply Risk: West Asia’s role as a major petroleum producer increases the risk of energy supply disruptions. The WTO warned that rising energy prices could dampen economic growth, especially in importing economies, and indirectly slow global trade.

Military Operations in Lebanon: The conflict intensified earlier this month when Israel launched military operations targeting Hezbollah, an Iran-backed militant group. This escalation followed a series of explosions and the assassination of Hezbollah’s long-time leader, Hassan Nasrallah.

Trade and GDP Growth: Despite the challenges, WTO economists project a 2.7% growth in global merchandise trade in 2024 and 3% in 2025. Global GDP growth is expected to remain steady at 2.7% for both years, slightly above earlier forecasts.

Rising Exports from India and Vietnam: WTO data indicate that exports from India and Vietnam are increasing, signaling their emergence as key connecting economies. Asian exports, led by manufacturing powerhouses like China, Singapore, and South Korea, are rebounding.
Europe's Lagging Performance: Europe, however, continues to act as a drag on global trade, particularly in sectors like chemicals and vehicles. The contraction in Europe’s imports, especially in machinery from China, reflects both economic fragmentation and declining demand.

Financial Volatility: The WTO also highlighted the risks associated with diverging monetary policies across major economies. Sudden shifts in exchange rates or capital flows could create financial volatility, making debt servicing difficult, particularly for poorer countries.

Reorientation Along Geopolitical Lines: The WTO has observed a growing fragmentation of trade flows, especially since the onset of the war in Ukraine. Exports and imports are increasingly being realigned based on geopolitical factors, which could continue to impact global trade patterns in the future.