Decline in trade poses challenge to growth

Global trade faced another setback last year, which is reflected in the decline in trade after two years, mainly due to a fall in trade in goods, although trade in services showed a better performance. Global trade has experienced negative growth since mid-2022, driven mainly by a substantial drop in trade in goods, and the trend continued in the first three quarters of 2023. The preliminary estimate of the United Nations Conference on Trade and Development (UNCTAD), released December last, showed that the value of global trade in goods may fall to around US$ 22 trillion last year from $24.31 trillion in 2022. The UNCTAD projected a fall of $2 trillion in the trade in goods, although trade in services is likely to increase by 7 per cent or $500 billion last year.
The setback was, however, predictable. World Trade Organization (WTO) in April last projected that the volume of world merchandise trade was expected to grow by 1.7 per cent in 2023, following 2.7 per cent in 2022 due to the 'effects of the war in Ukraine, stubbornly high inflation, tighter monetary policy and financial market uncertainty.' In November last, it unveiled that global exports of intermediate goods (IGs) declined by 8 per cent year-on-year in the second quarter of 2023 to US$ 2.3 trillion, driven by stagnating commodity prices and a marked contraction in global consumer demand due to high inflation and interest rates. IGs refer to inputs used to produce a final product and are considered as indicators of the activity in global supply chains.
The situation aggravated further in the last quarter of the year due to heavy unrest in the Middle East. Palestinian militia group Hamas launched an unprecedented assault inside Israel from occupied Gaza on October 7. Israel retaliated with airstrikes, naval attacks and ground offensive, killing more than 25,000 Palestinians. The genocide continues as the Zionist state has been defying all international conventions in the name of self-defence and ignoring global protests with the backing of the Western allies headed by the United States (US).
In a bid to stop Israel's brutal offensive against Palestinian people in occupied Gaza in the name of uprooting Hamas, Houthi rebels in Yemen are now attacking cargo ships in the Red Sea plying through the Suez Canal. The group, backed by Iran, has been chiefly using drones and rockets against foreign-owned vessels transporting goods through the strait of Bab al-Mandab, a 20-mile wide channel splitting Eritrea and Djibouti on the African side and Yemen on the Arabian Peninsula, according to BBC.
To avoid the attack, many shipping companies have diverted vessels away to a much longer route around Africa's Cape of Good Hope and then up the west side of the continent, taking at least ten additional days to reach the destination in Asia from Europe and vice versa. The result is delays in the supply of products and increased costs, fuelling global inflation further. To contain the attack, the US and UK forces have now launched air strikes against Houthi rebel targets in Yemen, only to make things further complicated.
As maritime transport carries approximately 80 per cent of the global movement of goods, any disruption here is costly for international trade. UNCTAD estimate showed that the Suez Canal, a critical waterway connecting the Mediterranean Sea to the Red Sea, handled approximately 12 to 15 per cent of global trade last year. Due to geo-political tension in the Middle East, the trade volume going through the Suez Canal decreased by 42 per cent in the last two months.
It is apprehended that the Red Sea crisis dealt a big blow to global trade in the last quarter of 2023, further reducing the total trade. Moreover, it will also cast a shadow on trade in the first quarter of the current year.
Following the global trend, Bangladesh's annual trade in goods dropped by around 20 per cent last year as the imports declined sharply. The central bank's restrictive steps to check the rapid slide in the value of the taka against the dollar and curb the inflationary pressure drove the growth of imports into negative territory. The value of imports in the first eleven months of the year stood at $61.63 billion against $88.24 billion in 2022. [The final figure for December last is yet to be available.] So, annual imports came down below $70 billion after two years. One of the restrictive measures was discouraging imports of luxury and non-essential commodities by enhancing the requirements of LC margins.
Statistics available with the Export Promotion Bureau (EPB) showed that the value of exports of goods stood at around $55.80 billion last year, posting a modest 2 per cent growth over the previous year. It is the slowest growth since 2020, when export earnings declined by 14 per cent due to the Covid-19 pandemic. In the consecutive two years, earnings from exports of goods bounced back as the global market recovered significantly. Nevertheless, exports faced a sluggish trend in 2023 as global demand dropped in the face of high inflation. The slowdown in exports, coupled with modest growth in remittance, around 3 per cent, turned the inflow of foreign exchange earnings thinner last year.
Bangladesh Bank, in its annual report for 2022-23, also said that due to the global business uncertainties and the ongoing depreciating pressure on the exchange rate, import growth faced a drastic fall last fiscal year. "Various measures taken by the government as well as Bangladesh Bank ease the import demand of non-essential items, which help to mitigate the pressure on foreign exchange reserves in FY23," it added. Thus, overall trade in goods declined, posing a challenge to maintaining the pace of economic growth as the country's economy is significantly trade-dependent. It remains to be seen to what extent the trade growth will bounce back by the middle of the current year.
[email protected]