The collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9pc in volume terms in 2009, the biggest such contraction since the Second World War, World Trade Organisation economists forecast today.
The WTO forecast paper has prompted yet more urgings for the world to come together to settle the stalled Doha Round of WTO talks, which are aimed at stimulating trade by removing tariff and subsidy barriers.
"Trade can be a potent tool in lifting the world from these economic doldrums," WTO Director-General Pascal Lamy said.
"In London G20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective."
Australian Trade Minister Simon Crean backed the call, saying "trade itself is a stimulus".
"The key message here is that we've got to do everything possible to stimulate economic activity and to advance trade flows," Mr Crean said.
"The ways in which we can do that is obviously to keep reinforcing the importance of the domestic stimulus packages, but to also conclude the Doha Round, because the Doha Round will give a new impetus to trade, it will enhance the stimulus packages that are being developed."
The WTO forecasts that the contraction in developed countries will be particularly severe with exports falling by 10pc this year.
In developing countries, which are far more dependent on trade for growth, exports will shrink by some 2-3pc in 2009, WTO economists say.
Although world trade grew by 2pc in volume terms for the whole of 2008 it tapered off in the last six months and was well down on the 6pc volume increase posted in 2007.
"For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output," Mr Lamy said.
"Production for many products is sourced around the world so there is a multiplier effect — as demand falls sharply overall, trade will fall even further.
"The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries.
"As a consequence, many thousands of trade related jobs are being lost.
"Governments must avoid making this bad situation worse by reverting to protectionist measures which in reality protect no nation and threaten the loss of more jobs."
Trade prospects for 2009
In projecting trade growth for 2009, the WTO has assumed a normal pattern for a recession, where trade falls, remains weak for a time and then resumes its upward trajectory and begins to return to its previous trend.
If this basic scenario holds, world merchandise trade is likely to fall some 9pc in volume terms in 2009 (ie, where price changes have been removed from the calculation), with developed economy exports falling by some 10pc on average and developing country exports shrinking by 2—3pc.
Not even China, with its dynamic economy, can insulate itself from global downturn when most of its main trading partners are in recession.
China's exports to its top six trading partners (treating the EU as a single partner) represented 70pc of the country's total exports in 2007.
All of these trading partners are currently experiencing economic contraction or slowdown and are likely to exhibit weak import demand for some time.
As part of its report, the WTO notes that prices for primary commodities were highly volatile in 2008, which is one of the main reasons why trade performance in the second half of the year was so different from the first half.
After steadily rising throughout 2007, energy prices spiked to record highs at over $140 a barrel by mid-year, only to crash afterwards to the lowest level since early 2005 amid weakening demand in oil importing countries.
Between January 2007 and July 2008 fuel prices rose 144pc, more than doubling. But from July until the end of 2008 they fell 63pc (Chart 2).
Prices for other primary products, including food, have also fallen from their peaks earlier in 2008, the WTO says.
Inflationary pressures remain in check in most countries due to weaker demand for goods worldwide, and deflation may be a greater risk in some countries in the short term.
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