WTO cuts trade forecast, sees rising protectionism

GENEVA (AFP) – The World Trade Organisation warned Wednesday of rising protectionism amid the economic crisis as it sharply cut its forecast for trade volumes of developed and developing economies this year.

Making its latest assessment of the global economic situation, the WTO also observed that the sharp contraction of the global economy registered in the first quarter this year “appears to be slowing down.”

However, citing risks including rising unemployment and oil prices, the organisation lowered its forecast of global trade contraction to 10.0 percent from its March forecast of a shrinkage of 9.0 percent.

Trading volumes of developed economies are now expected to shrink by 14.0 percent instead of 10.0 percent while those of developing economies would contract 7.0 percent, rather than the earlier forecast 2.0-3.0 percent.

Amid the economic crisis, the WTO said in its report to member states that there has been a growing number of instances of protectionism.

“In the past three months, there has been further slippage towards more trade restricting and distorting policies,” it said in the report obtained by AFP.

The WTO added that “resort to high intensity protectionist measures has been contained overall, albeit with difficulties.”

It noted that even without taking into account trade measures put in place due to the swine flu pandemic, there were more than twice as many new trade barriers introduced than new trade liberalising measures.

It said restrictions related to the A(H1N1) flu pandemic has been “most noticeable,” listing at least 39 member states which have imposed measures such as import bans on pork products from swine flu-affected countries.

“A worsening of the A(H1N1) flu pandemic could also create further downside risk to global economic recovery,” it said.

The trade organisation also raised renewed concerns over stimulus programmes put in place by governments in a bid to lift economies out of the recession.

It said that there is “very limited information that is available publicly” on these programmes, therefore, it is difficult to assess how these measures could distort markets and competition.

In addition, it is unclear when support or subsidies provided by the state to prop up ailing industries such as automobile or banking would be withdrawn when the problems are dealt with.

“An important consideration for the G20 countries, therefore, is to design and announce as soon as possible an exit strategy from their crisis measures that will allow world markets to return to normal again,” it said.

On Monday, the top central banking body BIS also called on governments to end stimulus programmes “promptly” once economic recovery bites, so as to avoid distorting markets and raising inflationary risks.

“Once the recovery becomes evident, the stimulus will have to be withdrawn promptly and markets allowed to regain their role in allocating resources,” Jaime Caruana, General Manager of the Bank for International Settlements, said during the bank’s annual general meeting.