Growth in world merchandise trade has slowed in recent years. After expanding by 4.6 per cent in 2017, the pace of expansion in world merchandise trade slowed to 3.0 per cent in 2018, and the World Trade Organisation (WTO) expects growth to ease further to 2.6 per cent in 2019 (Exhibit 1). The latest 2019 forecast by the WTO represents a significant downgrade from its previous forecast of 3.7 per cent, with the downgrade coming on the back of weaker-than-expected trade growth in the first half of 2019 as well as contractions in several forward-looking trade indicators such as air freight shipments and new export orders.

There are several factors driving the slowdown in world merchandise trade. First, global economic growth has weakened, with the International Monetary Fund (IMF) expecting full-year growth in 2019 to come in at 3.2 per cent compared to the 3.6 per cent recorded in 2018. Indeed, the pace of economic expansion in many advanced and regional economies such as the United States (US), China and ASEAN-5 has already eased, thus leading to weaker import demand from these economies. Second, electronics exports worldwide have been weighed down by the sluggish demand for major electronics end-products such as smartphones and personal computers. In particular, economies in Asia plugged into the global electronics value chain, such as Singapore, South Korea and Thailand, have seen a slowdown in their exports of electronics. Third, the bilateral tariffs imposed by the US and China on each other’s merchandise products since the first half of 2018 have led to a fall in merchandise trade between both countries, with knock-on effects on the demand for intermediate goods up the value chain. Uncertainties arising from the US-China trade conflict have also led to weaker business confidence, which has further weighed on global investments and hence trade in capital goods.

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