Risks and Resilience in Global Trade

2. Recent trends in global trade

2.1. Trade is expected to pick up in 2024 and 2025 after subdued growth in 2023 with also significant trade-related downside risks

The estimates from the IMF, OECD and WTO suggest that 2023 was marked by a decline in international goods trade (WTO, 2024[1]) and a very small increase in international trade of goods and services (IMF, 2024[2]), (OECD, 2024[3])). The WTO and the IMF estimate the global goods trade to have declined by respectively 1.2 and 0.4% while the IMF and the OECD estimate that global goods and services trade increased by respectively 0.3 and 1% (Figure 2.1) while world output is estimated to have increased by approximately 3%. A comparison with historical growth rates of world goods and services trade—in absolute terms and in relation to output growth (i.e. the so-called trade-to-GDP elasticity)—reveals that 2023 featured one of the weakest trade performances in the last four decades1 (Figure 2.1, Panel A). The weak trade performance in 2023 also contributed to the deceleration in the growth of the world trade-to-GDP ratio observed since the Global Financial Crisis of 2008-09 (Figure 2.1, Panel B).

The weak trade performance in 2023 is thought to be due to a combination of cyclical macroeconomic factors. Structural factors, such as significant increases of trade costs, are not thought to be major components explaining the 2023 slow down. The plateauing of the world trade-to-GDP ratio (Figure 2.2, Panel B) suggests an increased presence of long term structural impediments to trade growth already since the Global Financial Crisis2 but the particularly weak trade growth in 2023 is rather explained by a combination of compositional changes related to the recovery from the COVID-19 pandemic, as well as macroeconomic factors, most notably high inflation and interest rates which weighed on international trade of goods. The projections attribute the weak goods trade performance in 2023 to a combination of reductions in inventories (OECD, 2024[3]), a post-pandemic reorientation of spending from goods back towards services (OECD, 2024[3]; WTO, 2024[1]) and a weak import demand caused by inflationary pressures and high interest rates which weighed down on consumption of trade-intensive goods (WTO, 2024[1]). The better performance of services trade is explained by strong growth of travel-related services, which took longer to recover from the pandemic and grew robustly in 2023. The projections also point to considerable differences in trade performance across different goods and services and in different countries and regions (IMF, 2024[2]; OECD, 2024[3]; WTO, 2024[1]), in particular, to the positive contribution to growth of trade in 2023 of China, other dynamic Asian countries, as well as other non-OECD countries, and a relatively weak performance of trade in Europe.

Overall, the leading international trade projections released in the first half of 2024 project trade growth to normalise and grow in line with output in 2024 and 2025 (Figure 2.1, Panels A and B), close to average 2011-19 growth rates and trade-to-GDP elasticities, albeit below longer-term averages (Figure 2.2, Panel A). These projections have been upheld in recent updates to the forecasts which take into account new data on the evolution of world goods trade in the first quarter of 2024.3

All the projections also point to downside risks associated with these projections, some of which are related to trade performance. The latter include continuation of the disruptions of maritime trade through the Suez and Panama Canals or potential disruptions of other major trade routes, impact on trade of military conflicts, growing uncertainty in international relations, increased trade and industrial policy tensions, and surging protectionism and geoeconomic fragmentation.4 All these downside risk scenarios could significantly affect trade costs and, consequently, have negative implications for trade and long-term economic growth prospects.

Figure 2.1. Trade estimates and projections by the IMF, OECD, and the WTO (2020-2025)

Note: All trade and output growth estimates and projections are in real terms.

Source: IMF (April 2024), OECD (May 2024) and WTO (April 2024) projections.

Figure 2.2. Evolution of global trade of goods and services relative to global GDP

Note: Annual growth rates of volumes of world’s goods and services exports and gross domestic product (GDP) in 2015 prices. In Panel A, the average lines (av) refer to the period 1980-2022. Observations in red refer to 2023.

Source: OECD Economic Outlook database.

2.2. Trade and price developments since COVID-19

The years during and following the pandemic have been characterised by particularly strong growth in prices which has significantly contributed to rising inflation. The inflation, as measured by the consumer price index (CPI), in the OECD area increased from 2.17% in December of 2019 to 10.69 % at its peak in October 2022 with energy prices and to some extent food prices driving much of the change during the post-pandemic period (Figure 2.3).5 OECD (2021[4]) identified sharp increases in commodity prices, including energy, supply shortages, and high transportation costs as key drivers that pushed prices worldwide due to a combination of supply and demand side shocks during and post-pandemic. Significant shifts in demand towards goods and away from services during the pandemic, along with supply chain issues related to pandemic restrictions and shortages, put upward pressure on commodity prices which contributed to most of the rise in US inflation in 2021 and 2022 (Bernanke and Blanchard, 2023[5]). Arce (2023[6]) identified similar drivers of inflation for the euro area adding that the post pandemic recovery saw additional increases in demand stemming from a combination of pent-up demand for goods and services and the use of excess savings accumulated during the pandemic, while Russia’s aggression on Ukraine once again added upward pressure on food and energy prices particularly just after the invasion in early 2022 (Arce et al., 2023[6]). The authors found that spike in energy prices is one reason why inflation was more persistent in the euro area compared to the United States.

Figure 2.3. Inflation in the OECD as measured by the Consumer Price Index (CPI)

Note: Monthly series through August 2024.

Source: OECD (2024) Consumer price indices (CPIs, HICPs), COICOP 1999 extracted 17 October 2024.

The price dynamics during the pandemic era, particularly when energy and food prices were significantly elevated, resulted in the growth of merchandise trade values outpacing the growth in volume terms (Figure 2.4). The changes in the value of merchandise trade were likely heavily influenced by price developments at this time. However, as the demand between goods and services have started to normalise, i.e. reorient back towards services, and inflation has started to stabilise (Figure 2.3), growth in merchandise trade volume has been more aligned with growth in volume terms (as indicated in the last three quarters of data presented in Figure 2.4). However, the shift back towards services implies an increase in the price of services as noted by the recent World Economic Outlook by the IMF (2024b[7]) which might also lead to discrepancies between the volume and value of services trade.6

Figure 2.4. Year-on-year growth rate in world merchandise trade (value and volume terms)

Source: WTO Stats. Accessed 17 October 2024.

2.3. Developments in goods and services trade

As highlighted in the recent international trade projections, 2023 was characterized by a relatively strong growth in services trade as compared to goods trade driven in part by unequal recovery of goods and services from the COVID-19 pandemic. Services trade slumped deeper than goods trade during the pandemic and recovered more slowly due to a shift of consumption toward durable goods and a more gradual lifting of some of the pandemic-related restrictions that affected trade of services such as travel or transport. Figure 2.5, Panel A shows that while trade of both goods and services have now more than made up for the losses during the pandemic, the goods trade gap closed at the end of 2021 while the gap for services closed only in the second quarter of 2023. The more recent recovery of services along with a higher sensitivity of goods trade to inflation and high interest rates helps explain, in some part, why, in 2023, services trade continued to expand (9% growth in value in 2023) while goods trade declined (‑4%) (Figure 2.5, Panel B). More recently, according to the latest balance of payments data, both goods and services trade registered positive growth at the beginning of 2024 contributing to a more positive outlook for 2024 and 2025. Similarly, OECD estimates for the first quarter of 2024 registered positive growths in both goods and services trade relative to the previous quarter. Exports of merchandise trade of G20 economies increased 1.9%, driven partly by the growth in China, while preliminary estimates of G20 services exports increased 2.2%, partly fuelled by the continuing rise in international travel (OECD, 2024[8]).

Figure 2.5. Contrasting recovery of goods and services trade from the COVID-19 pandemic

Note: By comparing the evolution of goods and services trade during the pandemic with a pre-pandemic trends, the gap between the two accounts for the accumulation of trade foregone since the pandemic. An assumption of the ‘gap’ methodology is that trade in goods and services can be postponed in time, e.g. that the trade that was not possible during the pandemic (e.g. a cancelled travel or cancelled goods orders) could be realised when the pandemic restrictions were lifted.

In Panel A, the gap measures the accumulated monthly shortfall (the red part of figure) and excess (the green part of figure) of trade values (for goods) or values (for services) relative to the pre-pandemic trend. The trend is estimated using the historical method and represents the volume (for goods) or value (for services) if values were the same as in 2019, the pre-pandemic period. Latest data is for Q2-2024.

Source: IMF International Financial Statistics, based on a sample of countries representing 95% of global trade.

The relatively strong performance of services trade in 2023 was driven by travel, maintenance and repair, and personal, cultural and recreational services, that is, the types of services that when traded internationally require international travel and therefore were impacted relatively heavily by the pandemic travel restrictions in 2020-22 (Figure 2.6, Panel A). Services, which can be more easily delivered digitally, such as financial, insurance and other business services, were less impacted during the pandemic and grew more moderately in 2023. A gap analysis similar to that for the aggregate categories of goods and services in Figure 2.5, reveals that, despite high growth rates at the end of 2022 through early 2024 (Figure 2.6, Panel A), travel and maintenance and repair services yet to recover fully from the pandemic (Figure 2.6, Panel B). The gap is also still negative for trade in construction services, but the link to the pandemic trade restrictions is less clear as trade of this category of services had negative growth rates in the first half of 2019, and its oscillating growth in the period 2020-2023 suggests a stronger correlation with the global macroeconomic cycle.

Overall, the product structures of international trade of goods and services have changed significantly since 2020, but they are now slowly reverting to their pre-pandemic composition. The Finger-Kreinin exports similarity index,7 calculated for G7 countries and China as a group, measures the extent to which the composition of trade has changed relative to before the COVID-19 pandemic (2019). Figure 2.7 shows that changes in merchandise trade structure just one year into the pandemic (2020) were as large as the changes that typically takes place over seven years (e.g. between 2012 and 2019). The difference in the product structure of services trade was even more dramatic, changing almost twice as much as goods trade over the same period. Moreover, the ‘cumulative’ version of the index, where the four years 2020 to 2023 are treated as one period to smoothen any counterbalancing changes from one year to another, confirms that the structure of G7 and China’s services exports has changed more than the structure of goods exports. The stronger shift in services in the last two years is another illustration of the lagged recovery of services trade — particularly travel — relative to goods.

More recently, the product composition of both goods and services trade has started to shift back towards the pre-pandemic structure and the difference in size of the compositional change between goods and services has narrowed. However, relatively large differences remain even now.

Figure 2.6. Recovery of services trade by services category

Note: The “Personal services” category includes “cultural and recreational services”. Included countries: Belgium, Canada, Czechia, Denmark, Estonia, Finland, Germany, Greece, Hungary, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Poland, Portugal, Slovak Republic, Slovenia, Sweden, Türkiye, United Kingdom, United States, Brazil, China, India, Russia, Bulgaria, Malta, Mongolia, Pakistan, Romania, Serbia, Ukraine (85% of total trade in 2018-2019). Latest data: July 2024.

Source: WTO extracted November 2024.

Figure 2.7. Changes in the structure of goods and services trade for G7 and China as of the end of 2023

Finger-Kreinin index of similarity of export structure across products (1 = structure identical to 2019)

Note: The index, which varies between 0 and 1, is computed using product shares of total export value of G7 countries and China. A value of 1 indicates the group exported products in the same proportions as in the reference year 2019 and a value of 0 means that there were no common products exported in the two periods. A value of 0.5 can be approximately interpreted as a 50% overlap in export structures between the two periods. The index covers 2-digit HS categories for goods and twelve broad services categories (see Figures 2.8 and 2.9 for the list of goods and services). Manufacturing services on physical inputs owned by others are not reported by the United States and Canada for any of the covered years. Construction services are missing for Germany in 2012 and 2013. Maintenance and repair services n.i.e. is missing for China between 2012 and 2014. Sectors missing information are considered 0 in the computation. The ‘Cumulative’ indices sum exports from 2020 to 2023, treating the post pandemic years as one period to assume away any counterbalancing changes. Series ‘Goods (excluding Mineral Fuels and Oils)’ excludes HS chapter 27 Mineral fuels, mineral oils, and products of their distillation.

Source: OECD calculations based on UN Comtrade data and ITC Trade Map data for France, Italy, and Japan for 2023 (goods) and IMF Balance of Payments (services). Data extracted on 25 April 2024.

A closer look at the composition of goods and services trade in Figure 2.8 and Figure 2.9, respectively, provides more information on the drivers of changes in the structure of trade. Energy (HS27) and commodity products (HS99) are among the types of goods driving the structural changes over the last few years. Some of the changes related to these products are certainly due to sharp increases in commodity prices already during the COVID-19 pandemic and, particularly, after Russia’s invasion of Ukraine in 2022, since when they have only partially come down, remaining above pre-pandemic levels (see Section 2.6).

Energy products apart, 2023 marks a heavy increase in trade of vehicles (HS87) where the change in shares of total exports from the 2019 switched from a decline in 2022 (-1.5 percentage points) to an increase in 2023 (0.4 percentage points).8 The growth in trade of passenger cars in 2023 reflects pent up demand that has been realised after the pandemic-related production and delivery delays in prior years (see also Section 4).9 Electrical machinery and equipment (HS85) continue to account for a larger share of total exports compared to 2019 but the increase after the pandemic has diminished over the years, while aircraft products (HS88) continue to make up a smaller share of total goods exports.

As suggested by the Finger-Kreinin index, changes in the share of total exports among the service sectors were more radical, but the big shifts were accounted for by only a handful of sectors (Figure 2.9). The largest change was for travel services during the period of lockdowns, which lost 12 percentage points in 2021 relative to 2019. As the sector recovered, the difference in share from the pre-pandemic period gradually decreased but its share of exports is still below 2019 levels.10 As of 2023, export shares of other business services (SJ), telecommunication, communication and information (SI), and insurance (SF), which fared well during the pandemic period, remain above their shares in 2019. For most other sectors, the changes over the years have been small and most are now close to their pre-pandemic shares.

Figure 2.8. Goods with largest gains and losses in G7 and China’s export shares

Percentage point increase in export share since 2019, top-10 products with largest increases and decreases in export share between 2019-23

Note: Shows percentage point changes in export shares of G7 countries and China for ten merchandise sectors (2-digit HS) with the largest increases and deepest decreases between 2019 and 2023. HS code 99 (“Commodities not specified according to kind”) is excluded from the graph.

Source: OECD calculations based on UN Comtrade data and ITC Trade Map data for France, Italy, and Japan for 2023.

Figure 2.9. Services sectors with largest gains and losses in G7 and China’s export shares

Percentage point increase in export share since 2019

Note: Shows corresponding change in export shares for all broad categories of commercially traded services reported in the source data. Manufacturing services on physical inputs owned by others are not reported by the United States and Canada on the period.

Source: OECD calculations based on IMF Balance of Payments (data extracted on 25 April 2024).

2.4. China’s trade performance

As the world’s largest exporter and the second largest importer of merchandise products, China’s macroeconomic and trade performance is a major factor influencing global trade. China’s relatively strong trade performance in 2020 and 2021 was hampered in 2022 by the country’s strict COVID-19-related restrictions. In 2023, after the phase out of those measures, China’s trade and output growth again outpaced those for the OECD area and the world, as shown by the latest estimates from the OECD Economic Outlook (OECD, 2024[3]) (Figure 2.10). In 2023, China’s imports of goods and services grew faster (8.6%) than exports (4.1%) reflecting weak import demand from China’s trade partners.

Figure 2.10. China’s trade of goods and services and GDP growth in the period 2020-2025

Note: All growth rates adjusted for price movements. Forecast for 2024 and 2025.

Source: OECD Economic Outlook 115.

China’s trade growth was also markedly volatile during the course of 2023, as illustrated in particular by the intermittent periods of high and low growth of merchandise exports (Figure 2.11, Panel A), but there are concerns whether the relatively strong growth recorded at the end of 2023 and the first half of 2024 will be sustained. Real merchandise export growth seems to have already started to slow mid-way through the first quarter of 2024. On the merchandise imports side, China recorded relatively low growth rates at the beginning of 2023 (Figure 2.11, Panel B) but, similarly to exports, the trend reversed in the second half of the year, before slowing again at the end of 2023 and in early 2024. Since the second quarter of 2023, China’s real imports growth has been positive and more dynamic than that of the largest OECD economies but slower than that of other emerging Asian economies. While it remained positive in mid-2024, it has declined gradually since the beginning of the year. This may be an indication of China’s economic slowdown which could have significant implications for global trade and the world economy.

Figure 2.11. Comparison of China’s recent merchandise trade growth with other main economies

Notes: Four-month moving average of year-on-year growth rates on monthly trade statistics calculated using seasonally-adjusted volume data.

Source: CPB World Trade Monitor, October 2024 release.

The year 2023 also saw some stark changes in the partner and product structure of China’s trade. The declines in the value of China’s exports to the United States (-13%), the European Union (‑10%), Japan (-9%) and Korea (-8%) contrast with the 46% increase for exports to Russia and, albeit much less so, to Mexico (6%) (Table 2.1, Panel A). The changes in China’s bilateral exports coincided with falls of export values across most of China’s key export products, apart from exports of vehicles which grew by 29% (Table 2.1, Panel C). In 2023, China also imported less in value terms from ASEAN and most of its major OECD partners [Korea (-19%); Japan (-13%); United States (-7%) and European Union (-1%)], while it imported more from Russia (14%) and other major commodity suppliers such as Brazil (13%) and Australia (10%) (Table 2.1, Panel B). The shifts in import shares appear broadly consistent with the pattern of changes across China’s top 10 imported products which feature increases in import values for key commodities (Table 2.1, Panel D). To some extent, the shifts in product and important partner shares can be explained by a combination of an unequal recovery of China and its trading partners from the pandemic and changes in commodity prices (see also Section 2.6). However, these changes may also be an indication of a more structural re-orientation of trade across China’s trade partners and warrant further monitoring.

Table 2.1. China’s merchandise trade: Top 10 products and partners in 2023 at HS2-digits

Panel A. Exports by partner				Panel B. Imports by partner
Country	Value (USD bln)	Growth rate		Country	Value (USD bln)	Growth rate
	2023	2022-23			2023	2022-23	2019-23
ASEAN	537	-6%	49%	ASEAN	390	-5%	38%
United States	506	-13%	21%	European Union	283	-1%	2%
European Union	504	-10%	18%	Chinese Taipei	200	-17%	16%
Hong Kong (China)	279	-8%	0%	United States	166	-7%	36%
Japan	158	-9%	10%	Korea	163	-19%	-6%
Korea	151	-8%	36%	Japan	161	-13%	-6%
India	119	0%	58%	Australia	155	10%	30%
Russia	111	46%	125%	Russia	128	14%	112%
Mexico	82	6%	77%	Brazil	122	13%	54%
United Kingdom	79	-3%	27%	Saudi Arabia	64	-17%	18%
Panel C. Exports by HS2 product				Panel D. Imports by HS2 product
Country	Value (USD bln)	Growth rate		Country	Value (USD bln)	Growth rate
	2023	2022-23			2023	2022-23	2019-23
85-Electrical machinery	905	-6%	35%	85-Electrical machinery	552	-15%	11%
84-Nuclear reactors	515	-7%	23%	27-Mineral fuels	513	-3%	49%
87-Vehicles	194	29%	160%	26-Ores, slag and ash	237	6%	45%
39-Plastics	135	-7%	59%	84-Nuclear reactors	198	-2%	4%
94-Furniture	125	-5%	26%	71-Natural pearls, precious stones and metals	114	10%	89%
73-Iron or steel articles	100	-10%	44%	90-Optical, […] instruments	78	-6%	-21%
95-Toys, games and sports requisites	91	-13%	45%	12-Oil seeds and oleaginous fruits	71	3%	76%
61-Apparel (knitted)	84	-8%	18%	87-Vehicles	71	-13%	-6%
29-Organic chemicals	78	-24%	37%	74-Copper	63	-9%	55%
62-Apparel (not knitted) or crocheted	72	-6%	8%	39-Plastics	62	-17%	-13%

Source: General Administration of Customs of the People's Republic of China.

2.5. Developments in Russia’s international trade

The marked increases in the shares of Russia as a destination for China’s goods exports and as a source of China imports are also an illustration of the large changes in Russia’s international trade and changes in global trade patterns that have been taking place since its full-scale invasion of Ukraine in February 2022. In 2023, the value of Russia’s good exports decreased by approximately USD 168 billion while imports increased by some USD 27 billion, resulting in a USD 195 billion decrease in Russia’s goods trade balance which was equivalent in value to 12% of the country’s pre-invasion GDP (Figure 2.12). In 2023, the goods trade balance was also USD 72 billion (or 37%) lower than in 2021 and USD 45 billion (or 27%) lower than in 2019. To some extent, the significant decline in Russia’s goods trade balance in 2023 was driven by a high base effect of soaring energy prices following Russia’s invasion of Ukraine, which inflated the value of Russia’s goods exports in 2022. But these changes also reflect the continuing effects of the far-reaching trade and other economic sanctions on Russia implemented by a coalition of countries (OECD, 2023[9]).11

Figure 2.12. Exports and imports of goods and goods trade balance of Russia, 2019-2023

Note: *Balance on goods trade is expressed as % of Russia’s GDP in 2021.

Source: IMF Balance of Payments Statistics.

The effects of sanctions can be seen in the changes in Russia’s trade levels and partner shares (Figure 2.13). In terms of products structure, before the invasion, energy products (HS27) accounted for some 42% of Russian exports and were exported mainly to the European Union. Jewellery and precious metals (HS71) accounted for further 9% and were exported mainly to the United Kingdom while iron and steel (HS71) accounted for 4.7% and were exported mainly to European Union and Türkiye. Agricultural products (mostly wheat) accounted for 2.7% and were exported chiefly to European Union and China. Since the invasion, Russia has been exporting visibly less to the European Union and other sanctioning countries while at the same time increasing exports to China and India (Figure 2.13, Panel B). Primarily, the increase in exports to India and China has been accounted for by energy products as the two countries took advantage of buying Russian oil at a discount. Russia has also been expanding natural gas sales to China, although this has been limited by the capacity of the gas pipelines between the two countries, with gas export volumes smaller than those previously sent to Europe.

On the import side, before the invasion, Russia’s imports came mainly from Europe and consisted of high-tech products, such as ICT equipment, electronics, and automotive products. Since the invasion, exports from the European Union and other sanctioning OECD countries to Russia have declined significantly (by some 59% and 64% respectively), while exports from China, India, and other non-sanctioning OECD countries, predominantly Türkiye, have grown significantly (Table 2.2).

Figure 2.13. Reconfiguration of merchandise trade of Russia

Note: Russian trade is proxied by partner countries’ reporting up to March 2024 (i.e.it does not add up to 100% of total official Russian trade). Non-EU sanctioning: Canada, Switzerland, United States, Great Britain, Australia, Japan, Norway, New Zealand. European Union: EU 27. Other OECD: Türkiye, Mexico, Israel. CIS: Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan. Latest data: June 2024.

Source: UN Comtrade, Chinese Customs Statistics, ITC Trademap.

Table 2.2. Percentage change in value of trade in the period July 2023-June 2024 with respect to July 2020-June 2021

	Non-EU sanctioning	European Union	Other OECD	CIS	China	India	Brazil	All countries covered*
Imports from Russia	-81%	-69%	90%	-57%	105%	972%	212%	1%
Exports to Russia	-71%	-63%	52%	-64%	89%	58%	-23%	-16%

Note: * Russian trade is proxied by partner countries’ reporting (i.e.it does not add up to 100% of total official Russian trade). Non-EU sanctioning: Canada, Switzerland, United States, Great Britain, Australia, Japan, Norway, New Zealand. European Union: EU 27. Other OECD: Türkiye, Mexico, Israel. CIS: Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan.

Source: UN Comtrade, Chinese Customs Statistics, ITC Trademap.

G7 countries and the European Union, which led the establishment of sanctions, continued to reduce trade ties with Russia in 2023. G7 imports from Russia exhibited strong declines in both volume and value terms for all products with the exception of cereals, fertiliser, metals and inorganic chemicals, products where Russia is an important exporter (Figure 2.14, Panel A). G7 cereal imports from Russia increased significantly both in terms of value (77%) and volume (67%) while G7 fertilisers imports exhibited a smaller increase (13% in value terms and 16% in volume terms). For metals and inorganic chemicals, while import volumes have declined, the increase in prices of uranium and copper for instance, resulted in an increase in imports in value terms. On the export side (Figure 2.14, Panel B), there have been significant drops in exports to Russia of strategic products such as machinery, vehicles, electrical machinery, and aircrafts, while the decline in exports has been less pronounced for pharmaceuticals and wearing apparel.

Figure 2.14. Trade between G7 and Russia continue to fall across most products

Change in G7-Russia total trade in 2023 relative to 2021

Note: Based on value and volume trade data of G7 countries at the HS 2-digit level. The charts present the top 35 HS 2-digit products in value terms which covers 99% and 94% of total value of imports and exports respectively. Volume change based on products for which measurements in kilograms were available.

Source: UN COMTRADE

An additional sanction included a price cap imposed by a coalition of sanctioning countries which forbade insurance and financial companies to provide services to ships transporting Russian oil that is sold at a price higher than USD 60 per barrel.12 Initially, prices of oil exported from Russia dropped to around USD 60 per barrel at the start of the application of sanctions in December 2022 (Figure 2.15 Panel A). However, the difference between the world price (proxied by the Brent price in Figure 2.15) and Russian prices (Urals and ESPO) have progressively faded through the course of 2023 (Figure 2.15 Panel B). The price of Russian crude oil dropped vis-à-vis the world prices following the second phase13 launched by the United States in February 2024, before climbing again in April. In November 2024, USD 9.9 and USD 3.6 difference between the world and Russian prices for, respectively, the Urals and ESPO prices, suggesting only a partial pass through of the sanction to Russian oil prices. 14

Figure 2.15. Crude oil price (United States vs Russia): Recent fading effect of sanctions on oil price cap

Note: ESPO: Eastern Siberia-Pacific Ocean. Daily data up to 4 November 2024.

Source: London Stock Exchange Group (LSEG).

2.6. Effects on commodity markets of recent trade disruptions

In 2023, commodity prices have continued their decline, albeit from historically high levels following the COVID-19 pandemic and Russia’s invasion of Ukraine. At the beginning of 2024, commodity prices remained higher than pre-pandemic levels despite subdued global GDP growth in 2023 (Figure 2.16). The high level of commodity prices reflects several broader factors such as a tightening of supplies, geopolitical tensions, and greater demand for industrial metals related to the green-energy transition (World Bank Group, 2024[10]). As of September 2024, the metal price index was up 33% from the average pre-pandemic prices,15 while the food price index was up 30% and energy prices 19% (Figure 2.16). Within each index there are different behaviours among its components driving the changes.

Figure 2.16. Commodity prices are declining, but remain high

Note: *Excluding gold. Numbers in the label are the value of the index for each commodity in June 2024. All metals include base metals, silver, palladium, platinum. Energy includes crude oil (petroleum), coal, and natural gas and propane. Food includes bananas, cereal, citrus-fruit, dairy products, legumes, meat, non-citrus fruit, seafood, sugar, vegetables, and vegetable oils. See the IMF technical documentation for more information.

Source: IMF Primary Commodity Price System (accessed 16 October 2024, last data point September 2024).

The significant recent volatility in the energy prices has been driven by the price of natural gas and at times coal which faced increasing demands as governments favoured coal-generated energy in the presence of high natural gas prices (Figure 2.17). Currently, energy prices remain lower than historic peaks and the price spread between the three energy types has narrowed to normal levels. An unseasonably mild winter in 2023 helped to keep natural gas markets stable over the heating season in the Northern Hemisphere. However, concerns about high energy prices remain in the context of congestions and delays related to transportation disruptions and on-going military conflicts.

Liquefied natural gas (LNG) flows have been affected by congestion in two strategic maritime shipping chokepoints, Panama and Suez Canals (see also Section 3). The impact on LNG freight rates and supply have been limited for the moment but long-term issues of congestion could put upward pressure on prices (IEA, 2024[11]). Moreover, at the end of 2024 a five-year agreement governing the transit of Russian gas to Europe via Ukraine will expire and there are no new negotiations underway.16 This could make delivery to landlocked European countries more difficult. In addition, recent Russian attacks on underground gas storage facilities in Ukraine, which has more storage capacity than any country in Europe and has been providing the European Union with large scale gas storage facilities since 2022, has put traders on alert to high volatility and supply disruptions.17

Figure 2.17. Energy prices have declined from recent historic levels

Source: IMF Primary Commodity Price System (accessed 16 October 2024, last data point September 2024).

Food and fertiliser prices have declined considerably from the peaks reached following Russia’s invasion of Ukraine but are also still above pre-pandemic levels (Figure 2.18). The suspension of the Black Sea Grain Initiative in July 2023 caused a temporary increase in the price of vegetable oil, fertiliser and urea but so far has had minimal effects as Ukraine has been able to continue exporting through the seaborne corridor and new overland routes (World Bank Group, 2024[10]). Since the beginning of the harvest last August, more than 700 ships have passed through the sea corridor largely passing also through the Suez Canal and the Red Sea despite recent disruptions on this route due to Houthi rebels attacks.18 The drop in fertiliser prices at the beginning of 2024 reflects increased production and lower prices of natural gas and coal prices, which are important inputs into fertiliser production (World Bank Group, 2024[10]).

Figure 2.18. Food and fertiliser prices remain high

Source: World Bank’s Pink Sheet for fertiliser prices; IMF Primary Commodity Price System (PCPS) for food prices (accessed 16 October 2024, last data point September 2024).

While the aggregate food price index has remained stable, albeit high, in recent months, trends vary by different food commodities (Figure 2.19). The price of vegetable oils, cereals, and meats have all declined since their peaks in early 2022. Sugar prices, on the other hand, peaked sharply at the end of 2023 and have remained 64% above pre-pandemic levels mainly due to supply issues. The increase in the sugar price is related to El Niño which has weakened the monsoon season and brought dryness across parts of South and Southeast Asia resulting in an under production in major sugar producing countries (India and Thailand).19 Brazil who struggled with production in previous years, experienced port bottlenecks and logistical hurdles since October 2023 which have hampered sugar exports (USDA Foreign Agriculture Service, 2023[12]). Nevertheless, increased production in Brazil along with dry weather conditions in the country, allowed cane harvesting and processing to continue through the end of the year20 and for sugar exports to leave the port faster than expected, and caused sugar prices to drop at the beginning of 2024 (World Bank Group, 2024[10]).

Figure 2.19. Trends in food prices vary by commodity

Source: IMF Primary Commodity Price System (accessed 16 October 2024, last data point September 2024).

The Russian invasion of Ukraine triggered an additional increase in metal prices in early 2022 although prices of several metals declined in the second half of 2022 and in 2023 (Figure 2.20). One exception is uranium, a key component to produce nuclear energy and where Russia is a main exporter. The over 200% increase of uranium prices over the last five years is due to an increase in energy demand following the re-opening of the global economy after the pandemic as well as to Russia’s invasion of Ukraine after which prices took a sharp increase. More recently, fear of supply risk from Kazakhstan pushed prices up further.21 The pressure to cut emissions and belief that nuclear energy would make the energy transition safer and cheaper is expected to drive uranium demand higher in the coming years.22 Costs of inputs used in uranium production23 and their availability may put additional upward pressure on prices.

The 2023 decline in lithium prices are related to the electric vehicles (EV) demand, particularly in China. A key raw material used in electric car batteries, lithium’s price has declined 79% from its peak in early 2022 as industry capacity has outpaced actual demand and demand expectations ease as car producers cut their production target plans.24 In particular, sales in China, the world’s largest EV market, have slowed down growing only 30%, after increasing more 250% in 2021 and 100% in 2022, following the end of an 11-year subsidy scheme on EV purchases in 2022.25

Figure 2.20. Prices of selected metals

Source: IMF Primary Commodity Price System (accessed 16 October 2024, last data point September 2024).

Notes

← 1.  In the period 1980-2023, only 1982-1983, 2001, 2009, and 2019-2020 show weaker real growth of world trade in goods and services relative to growth of world GDP.

← 2.  The plateauing in the world trade-to-GDP ratio likely reflects a combination of factors such as maturing of global value chains (and thus their slower growth) but also reduced commitment to multilateral trade liberalisation, as well as rising geopolitical and security concerns, and barriers to international trade and FDI.

← 3.  A July 2024 projection update from the (IMF, 2024b[7]) notes an uptick in world trade growth in the first quarter of 2024 but argues that it is expected to moderate later in the year due to subdued manufacturing activity, leaving the earlier trade projections for 2024-25 unchanged. Also in July 2024, the WTO (2024[26]) released its first estimates of world trade volume growth for the first quarter of 2024 and commented that these figures are also broadly consistent with its earlier (April 2024) world trade growth estimates for 2024 and 2025. The source states that if the current pace of expansion in the first quarter of 2024 continues through the end of this year, trade volume for the whole of 2024 will be 2.7% higher than in 2023 (as compared to 2.6% for good trade projected by the WTO in April 2024). The OECD Interim Economic Outlook released in September 2024 (OECD, 2024[25]) describes goods and services strengthening especially in the second quarter of 2024; however, this boost in trade may have come from earlier-than-usual orders for the peak season in advanced economies to avoid congestions later in the year.

← 4.  For example, both the IMF (2024b[7]) and WTO (2024[27]) report on signs of fragmentation of world trade along geopolitical divisions.

← 5.  See Subsection 2.6 for a discussion on recent developments of individual commodity prices.

← 6.  Complete merchandise and services trade at the detailed product level is only available in value terms.

← 7.  The Finger-Kreinin index is a measure of export similarity. In the analysis, it is used to measure the similarity of the “G7 + China” region’s export structure in different periods compared to the region’s trade structure in 2019. The index ranges from 0 to 1, where an index value of 1 indicates perfect similarity, meaning that region exported the same products in the same proportions during the given period as it did in 2019. A value of 0 indicates that region is exporting an entirely different set of goods. The lower the value, the greater the difference in export structure of the given year compared to 2019, before the COVID-19 pandemic.

← 8.  Looking more into details in the geographic composition of trade for automotive products (HS87), between 2021 and 2023, the share of China’s exports increased from 13.5 to 17% gaining 3.5 percentage points while European Union’s share dropped from 29 to 27 percent loosing 2 percentage points among top 10 exporters (European Union, China, United States, Mexico, Japan, Canada, Great Britain, Türkiye, South Africa, Brazil). Based on UN Comtrade.

← 9.  See https://think.ing.com/articles/global-car-market-outlook-hitting-speed-bumps/.

← 10.  These figures, which are averages for the G7 group and China mask significant heterogeneity in changes across individual exporting and importing countries: Japan tripled the share of exports in travel services in 2023 (among top 10 exporters). Chinese’s share in imports fell from 35% pre-covid (2019) to 24% in 2022 and gained again 4 percentage points during 2023 to 28% among top 10 importers. Based on WTO services trade database.

← 11.  Also note that, despite some measures taken by Russia to defend the value its currency (i.e. conversion of Russian export sales into rouble, prohibition of bank transfers, quoting export of Russian gas in Russian rouble), the RUB/USD exchange rate was at a historical low level 0.01 in November 2024. Factors driving the decrease in demand for Russian currency in 2023 include lower export proceeds and low levels of foreign inward investment. The weak rouble constrains Russia’s ability to import and adds more challenges to its value chain participation in non-energy related sectors that require foreign inputs.

← 12.  See https://finance.ec.europa.eu/system/files/2024-01/guidance-russian-oil-price-cap_en.pdf.

← 13.  See https://home.treasury.gov/news/featured-stories/phase-two-of-the-price-cap-on-russian-oil-two-years-after-putins-invasion.

← 14.  The recent level of world prices (e.g. USD 72 per barrel on 6 November 2024) and the price cap of USD 60 for Russian crude would imply a USD 12 difference. The recent lowering of the difference between Russian and global price is mainly due to falling global prices. Other explanations of the partial pass through include inadequate monitoring and enforcement to prevent sanction circumvention as well as the “refining loophole” that allows non-sanctioning countries to buy and process Russian oil and then sell to anyone without restrictions (CREA, 2023[23]). Additionally, use of the so-called shadow fleet of tankers for shipments of Russian oil and ship-to-ship transfers and mixing or illegally and legally shipped oil, including by disactivating the automatic identification system (AIS) that transmits ships’ position and other fraudulent practices (Hilgenstock, Pavytska and Ivanchuk, 2024[24]).

← 15.  Average of prices between January 2018 – December 2019.

← 16.  See https://carnegieendowment.org/politika/91649, accessed 26 April 2024.

← 17.  See https://www.bloomberg.com/news/articles/2024-04-11/russia-attacks-ukraine-gas-storage-sites-driving-prices-higher, accessed 26 April 2024.

← 18.  See https://www.euractiv.com/section/agriculture-food/news/ukraines-grain-exports-via-black-sea-route-back-to-2023-levels/, accessed 29 April 2024.

← 19.  See https://www.washingtonpost.com/weather/2023/12/07/elnino-sugar-extreme-weather/, accessed 29 April 2024.

← 20.  Traditionally sugar production in Brazil’s main producing region ends in November when the rainy season intensifies making it difficult to harvest sugar cane (USDA Foreign Agriculture Service, 2023[12]).

← 21.  Earlier this year, Kazakhstan, the world’s largest miner of uranium, announced it may cut its 2024 production plan due to problems of availability of sulfuric acid needed to produce uranium.

← 22.  See https://www.reuters.com/markets/commodities/supply-risks-fuel-uraniums-flight-more-than-16-year-peak-2024-01-22/, accessed 29 April 2024.

← 23.  The supply of sulfuric acid, a bi-product of oil and gas production, will be impacted by the green transition. Moreover, additional demand for the input comes from alternative uses such as in phosphate fertiliser production.

← 24.  See https://www.reuters.com/business/autos-transportation/industry-pain-abounds-electric-car-demand-hits-slowdown-2024-01-30/, accessed 29 April 2024.

← 25.  See https://asia.nikkei.com/Business/Markets/Commodities/Nickel-and-lithium-prices-plunge-as-Chinese-EV-demand-loses-steam, accessed 29 April 2024.