International trade is set to grow more slowly than the global economy over most of the next decade as the war in Ukraine reshapes strategic alliances and alters the flow of cross-border commerce, a new report says.
World trade’s annual expansion rate will average 2.3 percent through 2031, compared with an increase in global GDP of 2.5 percent on average each year over the same period, according to forecasts from Boston Consulting Group.
Trade largely tracked the growth rate of world GDP during the decade preceding the pandemic. So the report predicts the worst stretch of stagnant globalization since the WTO was established more than a quarter century ago.
“After nearly 30 years of a comparatively secure trade environment, we are in the midst of a new East versus West dynamic, with a US-and EU-led community and a China-Russia counterpart, along with the potential emergence of a third grouping of non-aligned nations,” said BCG managing director Nikolaus Lang, a coauthor of the report.
Four major supply chains have suffered from the war and from increased tensions between the US and China — energy, agriculture, industrial metals and semiconductors. Those explain about 80 percent of current inflationary price pressures, according to Lang.
“The move from global to more regional trade also generates diseconomies of scale which triggers higher prices,” Lang said in an e-mail. “As the world adjusts, we expect inflationary pressures to reduce, but overall through 2023 and 2024 we will continue to see higher-than-normal inflation through this period of adjustment.”
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