Fitch Ratings - Global trade is now slowing sharply after a rapid post-pandemic recovery in 2021 and 2022, Fitch Ratings says in a new report. Monetary tightening, fading fiscal support and service sector reopening are now weighing on global goods demand, which leapt extraordinarily during the pandemic. World industrial production is also decelerating rapidly. Services trade is rising, but services production is less globally specialised.

Fitch forecasts global trade growth of 1.9% in 2023, a sharp reduction from 5.5% in 2022. That would align it with global GDP, which we project to grow by 2%, down from 2.7% last year. Trade growth seems unlikely to outpace GDP in the medium term, as globalisation stalls.

The volume of world trade in goods is now falling, partially offset by a recovery in services trade as tourism and transport rebounds. But services account for only 22% of total trade and this is not enough to fully cushion aggregate trade growth. Supply-chain bottlenecks are no longer a key constraint on trade flows. The recent slowdown in trade now seems more a reflection of slowing demand. US and global demand for consumer goods is weakening, which reflects the phase-out of US consumer-focused fiscal stimulus, monetary tightening and the rebalancing of demand back towards services after the lifting of Covid-19 restrictions.

The corollary of fading goods demand is a sharper slowdown in global industrial production than world GDP. World goods trade follows the industrial production cycle more closely than GDP as goods production is more internationalised. Our forecast of a flattening in the ratio of trade/GDP contrasts with the steady rise seen from the early 1990s to the middle of the last decade. But while some evidence of trade redirection is emerging, there is no evidence at this stage that globalisation is going into reverse.