Mar 26, 1991

GATT EXPECTS "MODEST SLOWDOWN" IN WORLD TRADE GROWTH IN 1991.

GENEVA, 25 MARCH (TWN) – Growth in world merchandise trade fell in volume terms from a seven percent growth in 1989 to five percent in 1990 and is expected to register a further modest slowdown in 1991, according to a GATT report.

According to preliminary estimates, based on data available as of early March, GATT economists say that the trade volumes grew by five percent in 1990 but due to the effect of the dollar depreciation against major European currencies, in value terms it increased by 13 percent to a new record of $ 3.5 trillion.

Services trade covering sectors like transportation, tourism, telecommunications, insurance and banking - are estimated by GATT to have grown by 12 percent to a value of $770 billion.

In what it calls a preliminary view of the impact of the Gulf crisis on world trade, the report says that while the overall effects on world trade were relatively small, the loss of trade for individual countries such as Jordan, Turkey, Romania, India and Yugoslavia has been appreciable.

With tourism accounting for an average of 11 percent of total exports of goods and services for countries in the area - and 25 percent or more for some of them - the losses from this sector as a result of the Gulf crisis have been widely shared and substantial.

Countries like Egypt and Djibouti have lost substantially as a result of reduced sea transport. In Egypt's case one-fifth of its foreign exchange earnings come from Suez Canal traffic.

Another important economic effect was the sharp drop in worker remittances from Kuwait and Iraq to India, Bangladesh, Pakistan, Sir Lanka, the Philippines and others.

In terms of merchandise exports, the UN embargo resulted in loss of 19.7 percent of its total exports to Jordan, 9.2 percent to Turkey, 4 1 percent to Romania, 2.8 percent to India, 2.4 percent to Yugoslavia and 1.1 percent to Brazil.

Though statistics for second half of 1990 are not available, there was a significant decline in exports of commercial services, especially tourism and transportation affected many countries in the region.

Over and above these, a number of countries also lost on worker remittances and additionally as a result of the burden of costs of repatriating and rehabilitating their nationals.

Before the crisis the largest source of non-Arab workers in the two countries were: India 200,000, Bangladesh, Pakistan and Sri Lanka each around 100,000 and Philippines around 60,000.

Based on pre-crisis estimates of remittances from Iraq and Kuwait supplied by these countries, the report puts the relative importance of these earnings as a proportion of the country's total merchandise exports at 2-1/2 percent for India and Philippines, 31/2 percent for Pakistan, six percent for Sri Lanka and 12-1/2 percent for Bangladesh.

The negative impact of the Gulf crisis on consumer and investor confidence was a setback to the world economy in 1990 and contributed to a slowdown already evident in a number of countries.

Even before the war ended, most forecasts for 1991 pointed to continued but slower growth in the world economy as a whole.

But the extent of trade and output expansion in 1991 remains more uncertain than usual, as is the timing of a resumption of higher rates of economic growth.

The GATT economists say that while prospects for world trade and economic outlook in 1991 should improve by the recent Gulf cease-fire and reduction of oil price from $35 a barrel in October to around $20, there are some uncertainties.

Despite the recent (surge in) confidence in many stock markets, it is not yet clear whether recessions in Australia, Canada, U.S. and UK have reached their turning points or when there will be an improvement in depressed growth rates elsewhere (Western Europe and Asia), they add.

Growth is expected to remain depressed in Central and Eastern Europe and in the USSR and below world average in Latin America and Africa. But the Middle East region might pickup as merchandise trade and tourism recover and rebuilding gets under way.