International trade is slowing rapidly as the COVID recovery fizzles and globalization stalls, Fitch says

• Global trade is rapidly slowing after a rapid post-pandemic recovery in 2021 and 2022.
• Fitch Ratings said trade will expand 1.9% this year, down sharply from 2022's growth rate of 5.5%.

The post-pandemic recovery in global trade that spanned the last two years is slowing dramatically, Fitch Ratings said Thursday.

The ratings agency expects international trade to grow by 1.9% this year, down from the 5.5% growth rate seen in 2022, and sees world GDP rising by 2%, down from last year's 2.7%.

"Trade growth seems unlikely to outpace GDP in the medium term, as globalization stalls," Fitch said.

Factors for the trade slowdown include tighter monetary policy, declining fiscal support, and the resurgence of the services sector, which contributes less to trade than the goods sector does.

In fact, the volume of the trade in goods is actually falling, with gains in services trade only partially offsetting that dip as tourism and transportation recover, according to Fitch.

Meanwhile, supply-chain bottlenecks that held back trade earlier have been largely resolved, while services are becoming less internationally specialized and only account for 22% of all trade.

The declining demand for goods has caused industrial production to cool rapidly, Fitch added. The deceleration has become evident in the softer prices of commodities such as copper and falling manufacturing output in China.

"Our forecast of a flattening in the ratio of trade/GDP contrasts with the steady rise seen from the early 1990s to the middle of the last decade," Fitch said. "But while some evidence of trade redirection is emerging, there is no evidence at this stage that globalization is going into reverse."

The forecast comes as global trade has seen major upheaval since Russia invaded Ukraine last year. In particular, Russian energy exports have shifted toward Asia and away from Europe.

Meanwhile, the US and China have escalated their trade war, with chipmakers and other high-tech sectors being targeted.