Global economic growth is projected to decelerate this year as the war in Ukraine causes immediate disruptions to global trade and is likely to have longer-term effects on its structure too, according to the United Nations’ trade and development body.
“In the short-term, price effects and scarcity are spilling over onto economies more dependent on Ukrainian and Russian exports, especially of commodities, ranging from oil to minerals and food,” the UN Conference on Trade and Development (UNCTAD) said in its update to its Trade and Development report.
In the medium term, the report said that fear of ongoing geopolitical instability is likely to lead to reorganization of value chains to reduce dependency on imports from countries that may be subject to sanctions.
“As disruptions to value chains are being eased in the wake of the pandemic, calls have arisen for closer further trade integration across the Atlantic and the South Pacific. Some strategically important production processes, like military equipment, are likely to be ‘re-shored’,” it said.
In 2021, global trade of goods and services rebounded markedly and reached a record high of $28.5 trillion, 13 percent higher than its pre-pandemic peak.
Greater merchandise trade volumes –as demand has shifted sharply from services (travel, leisure and entertainment) to durable goods since March 2020– and higher unitary prices for some key commodities supported this outcome.
The report said Asian exporters led the recovery in terms of volumes since the region is skewed towards manufactured goods, such as automobile, electronics, furniture and machinery.
Meanwhile, large commodity-exporters benefitted from elevated export prices, though their volumes are little changed from their pre-pandemic levels.
By contrast, the value of trade in services remained slightly below its 2019 figure, though it rose about 17 percent in 2021.
“The composition has, however, changed since the outbreak of the pandemic. Digitally deliverable services such as computer, financial and business services, together with air freight transport, have registered robust performances while other sectors like the ones relating to travel and tourism are still severely depressed,” it added.
The UNCTAD has downgraded its global economic growth projection for 2022 to 2.6 percent from 3.6 percent given the war in Ukraine and changes in macroeconomic policies made by countries in recent months.
It said while Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and Southeast Asia.