Qatar National Bank expects international trade to face pressures in light of the global economic slowdown, increasing trade protectionism and geopolitical tensions.
It estimated trade growth in terms of volumes will be less than 2% this year and remain weaker than the long-term average over the coming years.
Qatar National Bank indicated in its weekly report that the year 2022 witnessed a sharp slowdown in commercial activity due to the difficult environment associated with slow growth and high inflation, referring to three factors that will affect the growth of trade volumes in the future.
When dealing with the first element, the report pointed to the slowdown in international trade in the short term due to cyclical dynamics, indicating that trade increased by 2.7% last year in terms of volume, but it declined significantly from the boom that followed the “Corona” pandemic in 2021.
The bank considered that focusing on volumes, rather than values, is important given that large fluctuations in commodity prices can distort measurements, as happened during 2022.
The report said: These cyclical factors will continue to affect trade growth in the future, and although monetary tightening cycles by central banks in major economies are expected to end in the coming months, the environment of rising interest rates will increase the slowdown in advanced economies and will affect the demand of those countries for imports from During tightening financial conditions.
When dealing with the second factor, the report indicated that protectionist policies continued to spread worldwide, as the increase in protectionism became noticeable in the statistics related to trade policies around the world, as the number of trade restrictions imposed on commodities increased from levels of less than 750 commodities annually before 2019 to more of 1,700 commodities annually in 2021 and 2022 against the background of the pandemic and the Russian-Ukrainian conflict, which negatively affects trade.
In this context, the report stated that the United States enacted the law “creating beneficial incentives for the production of semiconductors,” as well as the law “reducing inflation.”
He pointed out that these programs aim to direct billions of dollars through tax exemptions and subsidies over the next ten years to promote the local semiconductor industry, research and development, and commercialization of advanced technologies in addition to clean energy infrastructure.
“Similarly, Europe and China have taken measures to replace imported technology with domestic alternatives in order to reduce dependence on geopolitical competitors and enhance competitiveness,” he said.
The report indicated that the ongoing and escalating geopolitical tensions affect global supply chain networks, which is an indicator of future trade developments.
“Given that international trade flows are largely determined by past investments in production capacities across countries, current developments in foreign direct investment provide information on future trends in trade,” he added.
The report indicated that total global foreign direct investment has fallen to less than 2 percent of global GDP in the past three years, which is the lowest level since the 1990s. Moreover, FDI inflows are increasingly driven by “friend support” rather than business considerations.
Geopolitical events, such as the strategic rivalry between China and America and the war in Eastern Europe, arouse companies’ interest in shifting production to new locations with similar geopolitical positions and aspirations. For example, the United States is moving its foreign direct investment from China and Vietnam to other “friendly” countries such as South Korea and Canada.
The report considered that “the rearrangement of global supply chain networks based on geopolitical considerations involves an imbalance in production from the economic rationale that was focused on improving profits,” and it is expected that this matter will affect trade developments in the future.
