Dec 3, 1986
GATT OPTIMISTIC, ECE MORE CAUTIOUS.
GENEVA, DECEMBER 1(IFDA/CHAKRAVARTHI RAGHAVAN)--- Growth in volume of trade in 1986 will be nearer four percent, compared to the three percent in 1985i the 5-1/2 percent average growth in the 1970’s, and the percent rate in the 1960’s, according to a GATT press release on its annual publication 'international trade 1985-86'.The annual review based on figures for first six months had projected that world 'trade was growing in 1986 at about the same three percent rates in 1985. The new projection of 'nearer four percent growth' in a GATT press release. GATT economists explain is due to latest available figures that show that there has been a sharp recovery in the volume of fuel exports the second half of this year. In a separate report, the UN Economic Commission for Europe (ECE) has said that world trade growth in volume in first half of 1986 was approximately at the same rate as in 1985. ECE says that if there are no basic changes in price of oil, debt situation the major exchange rates, development of trade over the next year or so is likely to be determined largely by the rate of growth of domestic demand in Japan and western Europe, particularly west Germany. Underscoring the exceptionally favourable conditions for expansion in these two economies, ECE adds: "but the absence of a more expansionary stance of policies, world trade seems likely to continue to grow over the coming year comparatively slowly – probably somewhere in the 3-4 percent range. More ominously, there could be little prospect of the present very serious imbalances in the world economy diminishing significantly". All the projections of UN agencies, GATT, etc., are on basis of common data available at the UN statistical office, and volume estimations of trade are arrived at from value figures of the trade. The ECE cautions that quite exceptionally large movements in relative prices, particularly the oil price collapse and major currency realignments, have made data on international trade "highly uncertain", especially unit values and volume estimates. According to the ECE bulletin, world exports in first half of 1986 grew at 2.6 percent or less than 1985i, while imports grew at 4.1 percent. By definition at the global level estimates of imports and exports have to be equal. The higher estimates of global imports than of exports, ECE says, are a reflection of difficulties in obtaining reliable data on foreign trade at the present time. But both export and import data indicate there has been little if any acceleration in rate of growth of trade between 1985 and first half of 1986. According to ECE, though some pickup-of world output growth, from the slightly more than three percent of 1985, had been expected in 1986, this acceleration did not materialise in the first half of 1986 The acceleration had been expected because of the stimulus to the economies or, industrialised countries from the steep-fall in prices of oil coming on top of a general softening of import prices of primary commodities, the decline in interest rates and improvements in structure of exchange rates. But adjustment lags and sharp reductions of demand in countries experiencing terms of trade losses appear to have outweighed the expected stimulative effects in the first six months. Nevertheless, ECE says, expectations still are for a strengthening of the world output growth in the latter part of 1986 and continuing into 1987. Import grow in first half of 1986 in north America and western Europe, ECE says, rose slightly, but in Japan increased by ten percent after the marginal decline of 1985. Third world imports continued to decline in 1986, but at a faster rate than in 19857 mainly because of the oil-exporters who compressed their imports by over one -fifth. The non-oil third world countries had an import growth about the same as in 1985, 3-1/2 percent. The exports of the OECD economies have decelerated to one percent in first half of 19867 compared to the four in 1985. But third world exports rose sharply by almost six percent, following a slight decline in 1985i largely due to turnaround in oil exports. The non-oil third world countries are estimated to have expanded their exports by almost five percent, an appreciable acceleration from the 3.4 percent in 1985. According to GATT, exports of manufactures by the third world has continued to increase, with their share of world trade in manufactures standing at 12-1/2 percent in 1985, compared to the seven in 1973. In 1986, GATT estimates, that for the first time in the post-war period the earnings of third world countries from exports of manufactured products will exceed their earnings from fuels. Also, in dollar value terms, the federal republic of Germany will emerge in 1986 as the world's largest exporter, overtaking the U.S. But this projection of the GATT economists appears to be merely reflective of the change in dollar-Deutchmark exchange rate, thus leaving little scope for broad policy conclusions to be drawn about U.S. export performance after dollar devaluation or its ability to reduce its trade deficits. GATT economists themselves have been contending for sometime that the U.S. trade deficits are reflective of the interaction of U.S. savings rate, investment rate and budget deficits, and that little could be dome in the area of trade policy to influence the trade deficits. The GATT review refers to efforts at macro-economic coordination and concerted intervention in the foreign exchange markets, and says: "these policies initiatives amount to acknowledgement that the move to floating exchange rates did not, after all provide an escape from the necessity for coherence and consistency of monetary and fiscal policies within, and among, major countries in a progressively more interdependent world". Referring to the oil prices and the world oil market, the ECE report says the world oil market is still in a state of over-supply, and the price of oil for the rest of the year will depend on OPEC’s ability to curtail its member's collective output. OPEC, ECE notes, will meet again in December in an attempt to decide how production would be shared over medium term, and suggests that this is likely to prove difficult. The OPEC target price of 17-19 dollars a barrel, ECE says, is significantly above the present 13--15 dollar price. A particularly hard winter in the northern hemisphere or a major disruption could shift the global oil balance, but otherwise pressure on prices seems likely to continue to be downward in the near future'. In regard to non-oil commodities, the downward trend in prices in terms of SDRS that began in mid-1984 has continued in 1986. By August 1986, ECE notes, the UNCTAD commodity index was 14 percent lower than a year earlier, and 23 percent below the August 1984 level.