Trade fragmentation risks 5% GDP reduction, WTO warns

Photo: PINA

The World Trade Organisation (WTO) warns members, including Fiji and the Pacific, of the risks of trade fragmentation.

The WTO forecasts that fragmentation will likely reduce long-term global Gross Domestic Product proving costly for all economies, particularly poorer ones.

Director General Doctor Okonjo-Iweala said their economists estimate the Pacific will be a critical casualty and calls for multi-lateral cooperation.

“If the global economy decouples into two self-contained blocs, long-term global GDP will decrease by at least five percent worse than the damage from the financial crisis of 2008–09. The IMF has found that some developing economies would in fact face double-digit welfare losses. Your region, where global supply chains are an important contributor to its economic success, would no doubt be also impacted.”

The Reserve Bank of Fiji’s April forecast shows that geo-economic fragmentation is downgrading the global growth forecast by 0.1 percent points to 2.8 percent in 2023 and 3.0 percent in 2024.

The WTO is dealing with issues of the end of globalisation, re-shoring and friend-shoring, elements that have the potential to harm the multi-lateral trading model. Recent global data indicate that economic fragilities are taking shape, and sticky inflation is keeping monetary policy restrictive, further denting growth prospects.