8:32 AM Apr 10, 1997

DECELERATION OF MERCHANDISE TRADE GROWTH

Geneva 10 Apr (Chakravarthi Raghavan) -- There was an appreciable slowdown in growth of world merchandise trade in 1996 -- with volume of world trade rising by about 4% compared to the 8% and 10% growth recorded in 1995 and 1994 respectively.

The World Trade Organization economists, in coming out Thursday (in a press release) with their "first report on trade developments" of last year, said at a briefing that they had inadequate data - for countries and across sectors - to be able to provide a clear explanation.

Nevertheless they went ahead to do some "positive thinking" to project a modest increase in trade growth in 1997, but based on a number of assumptions - some of which already seem likely to go wrong.

In reporting the slowdown in trade growth, the WTO said the deceleration in world trade last year turned out to be much stronger than forecast at the beginning of 1996 by all leading analysts, and cites as an example of forecasts that turned out to be wrong, the OECD's December 1995 forecast of world trade growth in 1996 of 8.2%, which had been scaled back to 6.1% in Dec. 1996.

This time last year, the WTO secretariat had projected a "robust seven percent growth", only slowing modestly from the eight percent of 1995. And at Singapore Ministerial Conference, the bad news of decelerating trade growth, was buried inside the annual report, but still projecting it at a five percent.

Nowhere in the press release is there are any reference to the WTO's own estimate this time last year projecting a "robust seven percent growth" or that in December 1996, the WTO came out with its annual report projecting the trade growth at five percent.

And in addressing the Singapore meeting, and presenting the annual report, the WTO head, Mr. Renato Ruggiero, made references to the WTO's role in liberalising trade, and the robust trade growth in 1994 and 1995 -- and spoke of trade being the engine of growth. Ruggiero in his speech made no reference to the slowdown in 1996.

The "bad news", deceleration of trade growth was buried in the annual report (released at Singapore without much fanfare) on page 12. But on page 3, the report had said (in a subtitle, but without any backing for it in the text) that "after a comparative slowdown in 1996, trade growth is to speed up again in 1997".

In projecting a "better days are ahead" outlook for 1997, the WTO secretariat now says that world trade in 1997 should expand somewhat faster than the four percent gain in 1996 -- but postulates this on a number of assumptions:

Its faster merchandise trade expansion this year is postulated on unchanged growth in North America, a slight deceleration of GDP growth in Japan, GDP expanding at about the same rate as last year in the OECD area as a whole, growth picking up in "East Asian traders" (Hong Kong, Korea, Malaysia, Singapore, Chinese Taipei and Thailand), and sharper improvements in output growth in Russia and Latin America.

Any one of these can go wrong, and some already show signs of it.

In December 1996, to present a picture (to the SMC) of the robustness of world trade and to pat itself on the back, the secretariat had compared the 10% growth in 1994 and the eight percent in 1995 to the average of six percent in 1990-95.

Now in presenting the slowdown in growth, the secretariat presents the 1994 and 1995 figures as one of "unusually strong trade growth", and presents the 1996 growth as similar to the volume growth recorded for the first four years of the decade.

World merchandise output, the WTO said, had decelerated marginally in 1996, but the 2-1/2% gain was well above the growth during 1990-1993.

WTO's chief economist, Richard Blackhurst, told a press briefing that the different periods were not 'base' periods, but chosen to illustrate the point being made in the particular report. The 1990-1994 period was shown in the current report to show that the trade growth in 1996, after two exceptional years of 1994 and 1995, had returned to the earlier norms!

All this is perhaps a tribute to the ability of the WTO economists, with help of computers, to use the data to buttress the basic philosophy and conclusions of the WTO and project a "heads I win, tails you lose" scenario.

In earlier reports, the secretariat used to compare the merchandise trade volume growth which was double or treble the merchandise output growth, to speak glowingly of this being the proof of "globalization" and trade as the engine of growth.

The WTO says that since 1990, world trade has grown much faster than world output, but that this gap narrowed in 1996, largely due to trade developments in Asia as the region's export and import volume growth fell below output growth.

But does the smaller merchandise trade growth/merchandise production growth imply weakening of globalization?

The WTO report does not answer this, but says that growth in trade volume remained atleast twice as large as GDP growth in North America, Latin America and Western Europe, while in the transition economies trade growth was above world average though there was a contraction of output.

The WTO's chief economist was asked whether the lowering of the ratio (2.5% GDP growth estimate for 1996 and the 4% for trade growth) and the fact that higher output and growth in earlier years was due to the Asian performance, and the lower figures now were due to a slowdown in Asia, suggested both a slowing down of "globalization" and the fact that "globalization" was a phenomenon confined to a few Asian countries.

Blackhurst said in earlier reports they had brought out the ratios of output growth and trade growth to indicate the globalization trend which had been under way since 1980, and even since 1950.

But the ratio of output to trade was not a measure of globalization, but a only a qualitative indicator, he said.

In value terms, world exports passed the five trillion mark, increasing by four percent over the past year to $5100 billion.

The world trade growth in value terms was 20% in 1995. But the sharper deceleration in value terms, the WTO says is due to the valuation effects of an appreciating dollar.

For the same reason, the exports of world's commercial services came down from a 14% growth in 1995 to five percent in 1996, with services exports reaching $1200 billion.

The deceleration in growth of export value was particularly pronounced for office and telecom equipment, iron and steel, and non-ferrous metals.

Fuel exports rose by more than 10% in value in 1996 -- boosted by the increase in oil prices.

For the first time since 1990, value of Africa's exports and imports expanded more rapidly than total world trade, the WTO says, but adds that this was largely due to "increased fuel exports".

This implies that on other sectors, Africa continues to be marginalized.

While full data is not available for the least developed countries, and the data from the EU (the main trading partner of the LDCs) is incomplete, on the basis of available data, the WTO reports that the external conditions for many LDCs was negatively affected by price declines for their major traditional export items.

For the LDCs as a group, while their merchandise export value expanded somewhat faster than world trade in 1996, import growth was less dynamic than exports, says the WTO.