World trade growth to slow further this year: WTO

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GENEVA (Reuters) - World trade growth will slow to a six-year low in 2008 although financial market turbulence and slowdowns in some developed economies have so far had little effect, the World Trade Organisation (WTO) said on Thursday.

By Jonathan Lynn

GENEVA (Reuters) - World trade growth will slow to a six-year low in 2008 although financial market turbulence and slowdowns in some developed economies have so far had little effect, the World Trade Organisation (WTO) said on Thursday.

The WTO, whose output projections are based on IMF and United Nations forecasts, said strong growth in some developing countries would help offset the effects of an economic slowdown in the United States and Europe. Strong commodity prices and a reduced reliance on exports to developed markets are benefiting some developing economies.

World trade growth will slow to 4.5 percent this year from 5.5 percent last year and 8.5 percent in 2006, the WTO said.

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WTO economists said the forecast was based on expected growth of 2.6 percent in world output this year. Major developed markets are expected to grow 1.1 percent and developing countries by more than 5 percent.

But trade projections are unusually difficult to gauge this year because of financial market turbulence which has reduced economic growth prospects for developed markets.

"These are uncertain and troubling times for the global economy," WTO Director-General Pascal Lamy said in a statement.

"To date, the financial market turmoil, significant price surges and the slowdown of developed economies have not led to a disruption of trade."

But Lamy said protectionist pressures were building and it was necessary to strengthen the global trading system with transparent, predictable and fair rules. A conclusion of the Doha liberalization round was the best way to do this, he said.

The forecast growth in trade for 2008 of 4.5 percent is the lowest since 2002. Levels around or below 4 percent were last seen before then during the recession of the early 1980s.

The forecast is subject to downside risks, such as the impact on output and monetary policy of resource-driven inflation and financial turmoil, and may be revised down later this year, Chief Economist Patrick Low said.

"Up to now the impact of the crisis in financial markets on trade flows has been quite limited," he told a news conference.

U.S. merchandise imports in the first two months of this year were 2 percent higher in real terms than a year earlier, for example, while U.S. exports rose 11 percent in that period.

A preliminary estimate of 5.5 percent trade growth in 2007 is slightly below the WTO's forecast of 6 percent, made a year ago, it said, noting that the world economy and trade started to slow in 2007 as demand decelerated in developed regions.

Developing countries took a record 34 percent share of world merchandise trade (exports plus imports) in 2007.

This year developing countries and the Commonwealth of Independent States (CIS), comprising Russia and most former Soviet republics, are expected to contribute more than one half of global import growth, the WTO said.

Strong commodity prices and reduced reliance on developed markets should help developing and CIS countries maintain high investment and consumption even if commodity prices soften in the second half of 2008, it said.

CEREAL PRICES

But the picture among developing countries is diverse, with a doubling in prices of major cereals between mid-2007 and March 2008 threatening developing net food importers with a big rise in their import bill this year, a rise in poverty and political consequences posing grave challenges, the WTO said.

"Whilst we are all concerned about what's happening to commodity prices we should never lose sight of the reality that some countries gain while others lose," Low said.

The decline of the U.S. dollar against the euro and other European currencies inflated the dollar value of trade in 2007. World merchandise exports rose 15 percent to $13.6 trillion and services exports outstripped that, rising 18 percent to $3.3 trillion. In real terms merchandise exports rose 5.5 percent.

Germany remained the world's biggest exporter of merchandise goods in 2007 due to a 20 percent rise in exports, the WTO said, noting that the real appreciation of the euro had differing consequences for export performance in euro zone economies.

China remained the world's second biggest trader, and its trade volumes outstripped the combined trade of Japan and South Korea. China, India and Vietnam each recorded nominal export and import growth of more than 20 percent in 2007.

With U.S. domestic demand possibly shrinking in the first half of this year, U.S. imports are likely to fall further quarter-on-quarter in the first half, the WTO said.

But U.S. exports are expected to grow, sustained by a strong real effective depreciation and excess U.S. capacity, it said.

(For full details of the WTO forecast click on: http://www.wto.org/english/news_e/pres08_e/pr520_e.htm )

(Editing by Catherine Evans)