World Economy

WTO Introduces Global Trade Indicator

WTO Introduces Global Trade IndicatorWTO Introduces Global Trade Indicator

Trade wonks and policy makers got a new data point to help assess the state of global trade, and the first reading wasn’t encouraging.

On Friday, the World Trade Organization launched a quarterly indicator on the sidelines of a Group of 20 trade ministers’ meeting designed to forecast world trade volumes three to four months in advance. Given repeated downgrading over recent quarters of the global economic and trade outlook, the World Trade Outlook Indicator started its existence pointing down.

The initial reading of 99.0 for the gauge for the third quarter suggests a modest weakening of global trade volumes ahead, given the 100 level separating expansion from contraction, reported.

“It will give policy makers quicker, more frequent insight into what’s happening,” said WTO economist Robert Koopman, who added that the methodology suggests the indicator would have done a good job signaling the global financial crisis and could point to the next financial crisis or a sharp economic downturn in China.

“Our data stops in May, so Brexit is not in there yet,” Koopman said, referring to Britain’s decision to leave the European Union. “But by July or August, we should be able to tell how Brexit will affect trade flows going forward.”

While other parts of the global economy have forward-looking indicators, global trade has relatively few, Koopman said. The WTO test drove various components, eventually settling on six it combined to craft the indicator: global air cargo volume, container port volume, auto production and sales, export orders, electronic components and agricultural commodities. When backtested, the indicator has proven 97% accurate, he said.

Willy Lin, managing director with textile maker Milo’s Knitwear Ltd. and chairman of the Hong Kong Shippers’ Council of export companies, said the new indicator is a good idea but probably not detailed enough when negotiating freight rates with shipping companies.

Most companies already know the general direction of global trade and are more interested in individual routes, major factories being built near particular ports and what markets are growing, he said. “Everyone knows the global market is not so good. We’re looking for more detail,” Lin said.

The WTO said the indicator isn’t meant as a short-term forecasting tool—its semiannual trade forecast fills that role—but rather provides a way to identify turning points and gauge momentum in global trade growth.

The organization’s current forecast is for 2.8% annual trade growth this year, the fifth consecutive year of below-3% growth, WTO Director General Roberto Azevêdo said.