Global trade set for mild contraction in 2025, reveals WTO report

The World Trade Organisation (WTO) warned of a potential contraction in global goods trade in 2025, forecasting a 0.2 per cent decline in world merchandise trade volume under current conditions, with significant downside risks stemming from renewed tariff disputes and policy uncertainty.

The outlook, presented in the WTO Secretariat’s latest Global Trade Outlook and Statistics report published last week, marks a significant downgrade from earlier projections and is nearly three percentage points lower than what might have been expected under a “low tariff” scenario.

The forecast is based on trade policies in effect as of April 14.

North America is expected to bear the brunt of the decline, with exports forecast to drop 12.6 per cent and imports by 9.6 per cent in 2025.

This regional downturn is set to subtract 1.7 percentage points from global trade growth, tipping overall merchandise trade into negative territory.

Director-general Ngozi Okonjo-Iweala expressed concern over continued policy uncertainty and escalating tensions, particularly between the US and China.

Pressure on global trade, WTO report shows

“The recent de-escalation of tariff tensions has temporarily relieved some of the pressure on global trade. However, the enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, the most vulnerable economies in particular,” she said.

Despite the temporary pause in reciprocal tariffs, the WTO warned that a reactivation of such measures — combined with broader trade policy uncertainty —could push the contraction in goods trade to -1.5 per cent next year.

The report also included, for the first time, a forecast for commercial services trade, which is projected to grow by 4 per cent in 2025, approximately one percentage point lower than previously expected.

While services are not directly subject to tariffs, spillover from weaker goods trade is expected to curb growth in transport, logistics, and travel-related sectors.

WTO chief economist Ralph Ossa highlighted the broader implications of policy instability. “Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” he said. “Tariffs are a policy lever with wide-ranging, and often unintended consequences.”

In 2024, merchandise trade had grown by 2.9 per cent, outpacing global GDP growth of 2.8 per cent — a rare occurrence outside of the Covid-19 rebound years. But the outlook for 2025 is significantly more subdued.

Regional trade divergence

Asia and Europe are expected to post modest gains in both exports and imports next year, with Asia forecast to see 1.6 per cent growth on both fronts, and Europe anticipating a 1 per cent rise in exports and 1.9 per cent in imports.

The Middle East and other commodity-producing regions are expected to support global trade through energy exports, which typically remain stable across business cycles.

Trade diversion triggered by US-China tensions is likely to bolster Chinese exports to regions outside North America by 4 to 9 per cent.

Conversely, US imports from China — particularly in textiles, apparel, and electronics — are expected to plunge, opening up opportunities for other suppliers, including least-developed countries (LDCs) with similar export profiles.

LDCs, while vulnerable to external shocks, may temporarily benefit from the ongoing trade diversion, especially as they compete in sectors like textiles and electronics.

However, the WTO cautioned that renewed tariffs could severely undermine their fragile export sectors.

Services trade growth to slow

In 2024, services accounted for 26.4 per cent of global trade — the highest share since 2005 — reaching a total of $8.69tn, up 9 per cent year-on-year. The WTO attributed this growth to strong demand and increased digitalisation.

However, economic uncertainty and weakened goods trade are expected to reduce demand for transport and intermediate services in 2025. The organisation noted that international travel, particularly leisure, could be among the first sectors to feel the pinch, with potential ripple effects on professional, R&D, and IT services.

Regional services growth in 2025 will be led by Europe (5 per cent) and Asia (4.4 per cent), while North America is expected to slow to 1.6 per cent.

The Middle East is forecast to grow by 1.7 per cent, with further deceleration in 2026. The outlook is weakest for Africa and Latin America, both expected to record declines.

Looking ahead

At the start of 2024, the WTO had anticipated a more optimistic outlook for 2025 and 2026, with merchandise trade growing in step with GDP and services trade outpacing both. But the introduction of a “large number of new tariffs” since January prompted a major reassessment.

The WTO urged its members to seize the moment to modernise trade rules and reinforce the multilateral trading system. “WTO members have the unprecedented opportunity to inject dynamism into the organisation, foster a level-playing field, streamline decision-making, and adapt our agreements to better meet today’s global realities,” Okonjo-Iweala said.

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