Green economy smiles even as global trade declines in Q4

World trade hit a record US$ 32 trillion in 2022, but growth turned negative in the closing months of 2022. A report by Geneva-based United Nations Conference on Trade and Development (UNCTAD), says that developing countries’ trade was particularly weak during the Quarter 4 of 2022. 

Inspite of the bleak trade performance in Q4, strong trade performance in “green goods” holds the silver lining. Among green goods that performed especially well were electric and hybrid vehicles (+25%), non-plastic packaging (+20%) and wind turbines (+10%).

Photo Source: Shutterstock

New Delhi, March 24: Global trade in the fourth quarter of 2022 may have slowed down, but the overall annual trend indicates positive growth. The United Nations Conference on Trade and Development (UNCTAD) on Thursday said that global trade was worth a record US$ 32 trillion in 2022, but amid deteriorating economic conditions and rising uncertainties, growth turned negative in the second half of the year and is set to stagnate in the first half of 2023.

The Geneva-based body in its report noted that developing countries’ trade was particularly weak during the fourth quarter of 2022, with East Asia and Latin America under-performing. Following are some of the key takeaways of the report:

• Global trade reached more than US$ 32 trillion in 2022, but growth turned negative during the last quarter of 2022.
• Developing countries’ trade was particularly weak during Q4 2022, with East Asia and Latin America underperforming.
• Nowcast suggests continuing trade stagnation for Q1 2023, but the outlook is more positive for the second half of 2023.
• While manufacturing trade declined, trade in environmentally friendly goods continued to increase throughout the second half of 2022.

2022 Trade: Strong beginning, uncertain finish?

UNCTAD says that in 2022, trade in goods was about US$ 25 trillion (increase by 10% YoY) and trade in services totalled about US$ 7 trillion (increase by 15% YoY). Those record levels were achieved largely due to robust growth in the first half of 2022.

Contrary to the first half of 2022, trade growth has been subpar in the second half, and especially in the last quarter. In Q4, 2022, trade in goods declined by about US$ 250 billion relative to Q3 2022. Trade in services remained virtually stagnant. UNCTAD nowcast for Q1 2023 indicates that global trade in goods could increase by about 1% YoY, while trade in services is expected to increase by about 3%.

But despite discouraging outcomes in the Q4, the report notes that trade in “green goods”, which use fewer resources and pollute less, grew by 4% in the second half of the year, reaching a record US$ 1.9 trillion in 2022. Green goods that performed especially well in 2022 included electric and hybrid vehicles, non-plastic packaging and wind turbines.

In terms of value of trade in goods, the report says that trade volumes kept increasing during Q4 2022 and are expected to further grow during Q1 2023. Growth in volume of international trade suggests resilient global demand for imported products.

Global Trade Overview

On one hand, UNCTAD says that 2022 emerged resilient on the overall trade, and on the other it cautions that deteriorating economic conditions, the lifting of zero-COVID policies, and renewed concerns about inflationary pressures have resulted in a significant trade slowdown during Q4 2022.

Similarly, the body says the economic outlook has improved, and global trade growth is expected to remain subdued in 2023, with the possibility of a pickup in the second half of the year. Overall, although the outlook for global trade remains uncertain, positive factors are expected to compensate for the negative trends.

Positive Factors

• China’s Purchasing Managers Index has increased by over 5% points since December 2022,
  indicating strong manufacturing and services activity and softening concerns about disruptions in global supply chains. Additionally, growth forecasts also indicate the likelihood that the European Union and the United States economies will now avoid a recession in 2023.
• Logistics bottlenecks are being resolved, and shipping capacity has increased in 2022. The Shanghai containerized freight rate index has returned to pre-pandemic levels and is expected to remain low throughout 2023.
• After high levels during 2022, the United States dollar index fell by almost 7% between November 2022 and February 2023. It is anticipated that a weaker dollar would result in increased demand for traded goods.
• Global commercial services are expected to further grow in 2023, primarily driven by a rise in demand for information and communication technology services, and by further recovery in travel and tourism sectors.

Negative Factors

• The ongoing war between Russian Federation and Ukraine remain the biggest potential risks negatively impacting international trade during 2023.
• Interest rates are expected to remain relatively high in many economies due to persisting inflationary concerns. Commodity prices are expected to remain above pre-pandemic averages, especially regarding energy, food, and metals.
• The current record levels of global debt, coupled with high interest rates, will impact economic conditions of countries negatively.

Presently, every major economy is focus on creating a “green economy“, a process which will involve change in patterns of international trade. As countries increasingly integrate climate commitments into trade and industrial policies, concerns regarding possibly restrictive trade practices may lead to changes in the global trade landscape.

Like many major economies (developed and developing nations), India’s exports also declined by 7% in Q4 2022, compared to the same period its previous year. However, the country’s imports grew by 2%, the report states. The value of trade in goods for the US and the EU, while lower in comparison to the previous quarter, was relatively higher to Q4 2021.