India should be worried as this may be the worst quarter for global trade in ten years

• The World Trade Organisation (WTO) has predicted that trade volumes for January-March 2019 will grow by their lowest level in nine years.
  
• India is aiming for a growth in exports to minimise fluctuations in its currency and trim its trade deficit.
  
• Export growth will have to be significantly higher if India wants to prevent a rise in its trade deficit, which widened to $14.7 billion last month.

The first quarter of 2019 was never going to be an easy period for global trade. Amid a slowdown in China and the EU, a potential no-deal Brexit and a trade dispute between the US and China - the two engines of global trade, the World Trade Organisation (WTO) has predicted that trade volumes for January-March 2019 will grow by their lowest level in nine years.

The forecast is based on WTO’s quarterly outlook trade indicator - a reading of seven factors such as merchandise trade volume, export orders, international air freight and automobile production and sales - which has fallen to a 96.3, falling to their lowest level since the financial crisis. A value of below 100 on the index indicates a reduction in trade growth.

India is aiming for a growth in exports to minimise fluctuations in its currency and trim its trade deficit. However, its exports grew by a mere 3.7% to $26.4 in January 2019. Export growth will have to be significantly higher if India wants to prevent a rise in its trade deficit, which widened to $14.7 billion as imports stayed flat at $41.1 billion.

Although India had intended to capitalise on the US-China trade war to boost its exports to both these countries, a slowing global trade scenario means demand could take a hit, triggering the possibility of oversupply. In a situation of oversupply, cheap imports from east Asian countries like China tend to flood the market, hurting domestic producers like steel companies.

That could be exacerbated by a slowdown in the EU as well, which India is currently negotiating a free trade agreement with.

However, there may be a positive side effect from the reduction in trade growth.

Lower trade growth could partly drive a slowdown in global economic growth. This in turn will likely keep a lid on oil prices, which have a direct relationship with global growth cues. Oil prices rise with higher demand, which is an outcome of high global growth, and vice versa.

India needs oil prices to remain within a manageable range of $60-$65/barrel to prevent finances from deteriorating further, so this could offset a decline in exports.

The WTO ended its forecast on a sobering note.

“This sustained loss of momentum highlights the urgency of reducing trade tensions, which together with continued political risks and financial volatility could foreshadow a broader economic downturn,” the WTO said in a statement.


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