Trade war is having a profound effect on global trade

Atradius N.V. forecasts a 0.6% contraction in global trade growth this year with only a modest recovery to 1.5% growth in 2020. The US – China trade war is the biggest contributor to the slowing growth, however issues in other large emerging market economies, spill-overs from Germany’s automotive and manufacturing slump and Brexit-motivated stagnation of European economies are also contributing to the slowdown.

The riff between the US and China is directly affecting almost 4% of global trade, roughly USD 700 billion. However, more important are the indirect effects that are being felt throughout the world. The uncertainty it creates in particular weighs heavily on business investment. That in turn negatively affects value chains and trade flows.

Despite all the uncertainty and disruption, consumers continue to spend and unemployment remains in check. With inflation stubbornly low, loosening monetary policy and tight labour markets supporting increased participation and rising wages, the consumer outlook remains positive for the near term. However, with the consumer being the lone pillar supporting economic growth, any shock to consumer confidence could destabilise the economy and reverse growth expectations in 2020.

John Lorié, Chief Economist of Atradius N.V. commented, “The trade war is having a profound effect on global trade. If it expands to other economies in Asia and Europe, which is very possible, we could see an even more pronounced slowing in trade. The uncertainty created by this and other economic and political developments around the globe are really challenging economic growth. While we don’t foresee a global recession at this stage, the outlook is very weak with a high risk of further slowing.”