Global Trade Forecast for 2025
Global goods trade could shrink by up to 1.5%
Context: In a significant revision to its earlier projections, the World Trade Organisation (WTO) has forecast a 0.2% contraction in global merchandise trade for calendar year 2025.
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- This marks a nearly three-percentage-point downgrade from its previous estimate of 2.7% growth, highlighting growing concerns over escalating trade tensions and economic uncertainty.
- If the protectionist trends—spurred by US President Donald Trump’s renewed tariff policies—intensify, the WTO warned the contraction could deepen to 1.5%.
- The forecast revision reflects a sharp departure from the relatively optimistic outlook issued in October 2024.
World Trade Organisation (WTO)
The World Trade Organisation (WTO) is the only global international organisation that deals with the rules of trade between nations, aiming to ensure that trade flows as smoothly, predictably, and freely as possible. Established on January 1, 1995, as the successor to the General Agreement on Tariffs and Trade (GATT). It has 166 members representing over 98% of global trade and GDP, including countries and entities like the European Union, Hong Kong, and Taiwan. It is headquartered in Geneva, Switzerland. The top decision-making body, comprising all member countries, meets usually every two years. The General Council handles day-to-day operations and meets regularly in Geneva.
North America to Face Steep Declines in Trade
- According to the WTO, North America is likely to bear the brunt of the trade downturn, with exports forecast to plunge by 12.6% and imports by 9.6% in 2025.
- The WTO cautioned that least-developed and export-dependent countries will be especially vulnerable to the ripple effects of retaliatory tariffs and supply chain disruptions.
Simulations Highlight the Impact of Policy Uncertainty
- WTO economists emphasised that the surge in protectionist measures and the rising unpredictability of trade policy could significantly depress trade activity.
- If fully implemented, Trump’s reciprocal tariffs alone could shave 0.6 percentage points off global trade growth in 2025.
- Policy uncertainty could add another 0.8 percentage point decline, resulting in a total contraction of 1.5%.
Services Trade Rises, But May Not Offset Goods Decline
- Although merchandise trade faces headwinds, global services trade continued its upward trajectory in 2024, expanding 9% to $8.69 trillion.
- Services now make up 26.4% of global trade—the highest share since 2005—driven by digital transformation and increased demand in sectors like IT, finance, and professional services.
- However, the WTO noted that these figures do not yet fully capture the potential knock-on effects of goods trade disruptions spilling over into services, particularly in logistics, tourism, and cross-border digital commerce.
UNCTAD Predicts Global Growth Slowdown Below Recession Threshold
- Adding to the grim outlook, the United Nations Conference on Trade and Development (UNCTAD) warned that global GDP growth is expected to slow to 2.3% in 2025, falling below the 2.5% threshold that typically signals a global recession.
- In 2024, the world economy grew by 2.8%, but growth is projected to decelerate across key markets: India’s expansion is expected to ease from 6.9% to 6.5%, China’s from 5% to 4.4%, and the US from 2.8% to just 1%.
- The European Union is projected to see a modest increase from 0.9% to 1%.
The WTO and UNCTAD’s latest warnings underscore the fragile state of the global economy heading into 2025. With rising trade tensions, unpredictable tariff policies, and slowing growth across major economies, the outlook for both trade and overall economic performance remains highly uncertain.
