The World Trade Organisation has released its outlook for the next few years. In it, they forecast that world merchandise trade volume is expected to grow by 2.4% in 2024 and 3.3% in 2025. The increase in merchandise trade is reinforced by persistent growth in the global economy. A few factors have supported global trade. In the first two months of 2024, global energy prices were down 41% on average even as they remained higher in 2019. The average price of crude oil was down by 30% from its peak in 2022 and still 29% above 2019 levels. This article looks at the key outcomes of the World Trade Outlook. 

World Trade in goods will grow as Global Economic Growth Remains Solid

World Merchandise trade will grow, reinforcing demand for goods from developing countries and inputs that are cheap and more affordable as energy prices are falling, but remain high in advanced economies. World merchandise trade is forecast to grow 2.6% in 2024 and 3.3% in 2025 following the contraction of traded goods in 2023. 

After sanctions were imposed on Russia, global trade was down 1.2% last year after growing by 3% in 2022. Although the lingering effects of high energy prices and inflation weighed especially heavily on demand for trade-intensive manufactured goods, they are poised to recover gradually over the next two years as inflationary pressures ease and households' disposable incomes increase. Manufacturing and industry will be driven by continued demand for metals to power the renewable energy transition. 

World merchandise trade fell by 5% in 2023 to $24.01 trillion, led by a plunge in Russian exports of 28%, as well as by manufacturing-oriented Asian economies, including China (-5%), Japan (-4%) and the Republic of Korea (-8%). Some other major economies saw major declines and modest increases including the United States (-2%), Germany (+1%), and Mexico (+3%). Metal prices performed averagely, setting the foundations for a recovery in 2024 as demand for EVs fell in comparison to other years. This was visible in merchandise trade in the fourth quarter of 2023 was still up 6.3% compared to Q3 2019 and 19.1% compared to 2015. 

Inflation as broad-based and central banks hiked interest rates 

As for agricultural products and inputs, prices for food, grains, and fertilizers were all significantly higher in 2024 than in 2019, up 35%, 45%, and 44%, respectively. High energy prices in Europe, particularly for natural gas, had lingering negative effects on EU economies such as Germany which produce and export energy-intensive manufactured goods. Since the start of 2022, central banks in advanced economies have raised interest rates to dampen the inflationary pressures that eroded incomes and reduced consumption of goods, including imported ones. Interest rates in the United States rose from 0.1% in February 2022 to 5.4% in August 2023, where they remained through March 2024. Similarly, interest rates in the euro area increased from 0.0% in June 2022 to 4.5% last October and have remained at this level. Central banks in many developing economies have also hiked rates to their highest levels in years, including Brazil (11.8%) and South Africa ( 8.3%). If central banks raise interest rates, this could cause the dollar to appreciate and cause the prices of metals to fall or slow the pace of the rally. 

Manufacturing is Now Recovering and Trade will Follow

Purchasing managers’ indices (PMIs) based on business surveys provide a reliable signal of the current state of the global economy, while the new export orders component indicates the short-term outlook for trade. The headline manufacturing index was below the baseline value of 50 separating expansion from contraction from September 2022 until December 2023 before rising to 50.3 in February, suggesting the possible start of a manufacturing recovery. 

The World Trade Organisation outlook is benign and suggests that metal prices will perform well in line with forecasts for the improvement in merchandise trade. As metal prices recover with global merchandise trade and a recovery in manufacturing activity, this will support metal prices over the medium term and cause the share price of mining stocks to perform well in 2023. This is a boon for companies like Cobre Limited (ASX: CBE), whose share price will inadvertently perform well in line with the broader market for metal prices.