GENEVA, April 16 (Reuters) - The World Trade Organization sharply cut its forecast for global merchandise trade from solid growth to a decline on Wednesday, saying further U.S. tariffs and spillover effects could lead to the heaviest slump since the height of the COVID pandemic.
The WTO said it expected trade in goods to fall by 0.2% this year, down from its expectation in October of 3.0% expansion. It said its new estimate was based on measures in place at the start of this week.
"I'm very concerned, the contraction in global merchandise trade growth is of big concern," WTO Director General Ngozi Okonjo-Iweala told reporters in Geneva.
U.S. President Donald Trump imposed extra duties on steel and car imports as well as more sweeping global tariffs before unexpectedly pausing higher duties on a dozen economies. His trade war with China has also intensified with tit-for-tat exchanges pushing levies on each other's imports beyond 100%.
The WTO said that, if Trump reintroduced the full rates of his broader tariffs that would reduce goods trade growth by 0.6 percentage points, with another 0.8 point cut due to spillover effects beyond U.S.-linked trade.
Taken together, this would lead to a 1.5% decline, the steepest drop since 2020.
"If we have contraction in global merchandise the concern is spill over into broad GDP growth. We've seen that the trade concerns can have negative spill overs into financial markets, into other broader areas of the economy," Okonjo-Iweala added. She also raised alarm about the impact on developing countries.
DECOUPLING FEAR
The head of the WTO said her greatest fear was that the economies of China and the U.S. were decoupling from one another.
The WTO estimates that merchandise trade between them will fall by 81% - a drop that could have reached 91% without recent exemptions for products such as smartphones.
"A decoupling could have far reaching consequences if it were to contribute to a broader fragmentation of the global economy along geopolitical lines to two isolated blocks," Okonjo-Iweala said.
In this scenario, global GDP could shrink by 7% in the long term, which the director general described as "significant and substantial".
"The unprecedented nature of the recent trade policy shifts means that predictions should be interpreted with more caution than usual," said the WTO, which is also forecasting a modest recovery of 2.5% in 2026.
"Forecasting a credible baseline scenario has become virtually impossible," Hector Torres, a former executive director of the International Monetary Fund, told Reuters.
"The remnants of a deteriorated 'rules-based' trading system are giving way to a capricious 'deals-based' disorder, where any projections hinge on government’s capacity to strike bilateral deals with the Trump Administration," Torres said.
Earlier on Wednesday, the U.N. Trade and Development agency said global economic growth could slow to 2.3% as trade tensions and uncertainty drive a recessionary trend.
The Geneva-based WTO said disruption of U.S.-China trade was expected to increase Chinese merchandise exports across all regions outside North America by between 4% and 9%.
Other countries would have opportunities to fill the gap in the United States in sectors such as textiles, clothing and electrical equipment.
Services trade, though not subject to tariffs, would also take a hit, the WTO said, by weakening demand related to goods trade such as transport and logistics. Broader uncertainty could dampen spending on travel and investment-related services.
The WTO said it expected commercial services trade to grow by 4.0% in 2025 and 4.1% in 2026, well below baseline projections of 5.1% and 4.8%.
The expected downturn follows a strong 2024, when the volume of world merchandise trade grew by 2.9% and commercial services trade expanded by 6.8%.
Reporting by Olivia Le Poidevin and Philip Blenkinsop, editing by Ed Osmond and Emelia Sithole-Matarise
