Higher growth prospects for world trade this year

CHENNAI, APRIL 13. The world merchandise trade in volume terms expanded by 4.5 per cent in 1999, the same rate as in 1998. A strengthening of world economic output reversed the slowdown in trade in the first half and led to a dynamic expansion in the second half, thereby improving the prospects for higher growth in the current year. In fact, the pace of expansion in the fourth quarter exceeded the average rate of 6.5 per cent recorded in the Nineties, according to the World Trade Organisation's preliminary report on trade developments in 1999 and outlook for the current year.

In value terms, while global merchandise trade increased by 3.5 per cent in 1999, commercial services trade accelerated only slightly as the recovery in Asia and higher growth in North America were partly offset by lower growth in Western Europe and an import contraction in Latin American and the transition economies. The highest growth was recorded in West Asia and Africa, thanks to oil price developments. The report finds that exports of developing countries expanded by 8.5 per cent or about two times faster than the global average. Throughout the Nineties, their exports rose faster than world trade, with the exception of 1998. The share of developing countries in global trade was 27.5 per cent for merchandise exports and 23 per cent for commercial services exports.

The average prices of internationally treaded goods declined slightly. The weakness of the euro contributed largely to the fall in Western Europe's dollar export prices and a decrease in the prices of manufactured goods. Non-fuel commodity prices continued to weaken further, thus affecting the earnings of many raw material exporters. Oil prices, which had fallen sharply in 1998, recovered strongly in 1999 due to a cutback in oil output and an increase in global demand.

Nominal and real effective exchange rates recorded major variations, leaving their mark on trade flows. While the euro and most European currencies weakened vis-a-vis the U.S. dollar, many East Asian currencies, in particular the Japanese yen, the Korean won and the Thai baht, appreciated markedly.

Global merchandise imports grew at double digit rates in North America and Asia, stagnated in Western Europe and Africa and decreased by about 10 per cent in the transition economies and in Latin America (excluding Mexico). The output of world commodity remained static at 1.5 per cent. A fall in the mining sector production contrasted with stronger growth in the manufacturing sector. The global output of services industries exceeded the commodity output growth, the report states.

According to the report, global inflows of foreign direct investment surged to a new record of $800 billion mainly due to large value of cross border mergers and acquisitions. The sharp rise in global capital flows was largely concentrated among developed countries. Private net capital flows to emerging markets are estimated to have stagnated in 1999 at bout $150 billion.

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