World trade growth

slower in 1998

THE rate of growth in the volume of world merchandise exports slowed to 3.5 per cent in 1998, from over 10 per cent in 1997, due largely to continuing economic contraction in much of Asia.

World output growth slipped to 2 per cent in 1998, compared to 3 per cent in 1997. Although trade growth still exceeded output growth in 1998, it was by a smaller margin than the average for the 19905.

Export growth in 1999 is expected to match that of 1998, but for this projection to be realiised, trade growth will have to accelerate during the course of 1999.

This projection also assumes that slow ing output growth in the United States and Western Europe will be offset somewhat by recovery in Asia. A faster than expected slowdown in the United States or Western Europe, or slower recovery in Asia, would clearly imply export volume growth below 3.5 percent in 1999.

These are among the findings of the WTO's first report on trade developments last year and the outlook for this year.

The report found that, in 1998, an increase in the supply of many primary commodities coincided with a slowdown in economic activity, leading to a sharp drop in commodity prices.

Prices of non-fuel commodities and crude oil fell by 15 per cent and more than 30 per cent, respectively.

Although prices of manufactures

decreased as well, prices of primary com modities decreased much faster (for the second year in a row).

As the oil price decline accelerated dur ing the course of the year, the year-over year change in December 1998 exceeded 40 per cent.

For non-fuel primary commodities, the period of weaker prices started earlier and

moderated in the second half, with the result that the decline at the end of the year (about 10 per cent) was smaller than the annual average for 1998.

Oil exporters have yet to feel the full impact of lower spot oil prices on their

export earnings.

Investment and government expendi ture is likely to be curtailed in 1999. Import levels will contract further, as such a steep price decline cannot be fully absorbed by a reduction in foreign exchange reserves.

As noted earlier, the steep fall in fuel prices affects in particular the export earn ings of the Middle East and Africa. Besides the 11 member countries of OPEC, in about another eight countries fuel exports account for more than one half of export earnings.

It is important to note that in the first quarter of 1999, the spot oil price recov ered from its low level in December 1998 following the announcement of production cuts by oil producers. It remains to be seen whether this upward trend will continue or the present price gains will prove sustain able.

While these trends will lead to down ward adjustments in the imports of oil exporting countries in 1999, related income gains in oil-importing countries will at least partially offset this contrac tionary tendency in world trade.

Exporters of agricultural products are a larger group than oil exporters. The decline in agricultural prices therefore affected a larger number of countries, but generally less dramatically than the oil exporters.

This is for two reasons.

First, the decline in agricultural product prices was less steep than for oil. Second, the exporters of agricultural products gen erally depend less on a single commodity than do the fuel exporters. ■