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Trade in 2023 and beyond
Will weakness persist?
- While global trade looks set to be subdued in 2023…
- …longer-term questions are being asked about globalisation
- This could mean a worse growth-inflation trade-off
The global trade outlook for 2023 isn’t pretty. Weaker import demand from the US and softer global goods demand are likely to weigh on trade data. It’s likely that global trade growth in 2023 is below 1%, despite the likely rebound in global tourism being supported by more travellers from mainland China.
But the worries may extend beyond this year, and to a world where global trade is no longer a structural tailwind for the global economy and instead becomes a headwind. Geopolitical tensions top the list of challenges, with a rise in protectionist measures from governments, but global supply chains are likely to be shuffled in the years to come, with reshoring, near-shoring and friend-shoring all likely to become much more widespread as firms react to the vulnerabilities in their supply chains that the pandemic has unearthed. However, so far, the data suggest there’s little evidence of trade’s importance shrinking in practice. Global trade’s share of GDP rose in 2021 and in 2022 it most likely rose again, to the highest share since 2014. While firms may be talking more openly about the need to ‘nearshore’ or ‘reshore’ in earnings calls and surveys, the data suggest this process is yet to begin in earnest beyond some small moves from some manufacturers and some industries (such as semiconductors) seeing a more focused push to improve supply chain resilience.
Supply chains may end up being more resilient
Going forward, these trends will need to be monitored. One of the big questions is whether the previous era of globalisation evolves into one with less global trade, or simply trade that involves different parties. Supply chains may end up being more resilient as a result, but this may come at a cost of higher input prices for firms and additional trade frictions. Much will depend on how new forms of production are created, and essentially whether more digitisation can offset these challenges.
This is what creates concerns – that an era of more open borders that, by-and-large, helped to improve efficiency, lift economic activity and keep a lid on prices could be coming to an end. This could well mean a deterioration in the growth-inflation trade-off if this plays out. However, it’s worth adding that global trade data may be weighed down by other factors such as a rotation to services trade (that is hard to capture) or environmental concerns meaning changes to what is produced and shipped. Automation of many processes may limit the supply side shock, too.
In any event, watching how trade flows evolve through 2023 and beyond will be key. Please check out our report for a wide selection of trade charts for key economies that we can monitor to see how global trade evolves in the years to come.
Would you like to know more? Click here* to read a free-to-view version of the report.
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