Global Trade Set for Mild Contraction in 2025, WTO Report Reveals

The World Trade Organisation (WTO) has issued a warning that global goods trade is likely to contract by 0.2% in 2025, citing ongoing trade wars, economic uncertainty, and weakened demand for transport and intermediate services. The forecast marks a significant downgrade from previous projections, largely due to the impact of renewed tariff disputes and policy uncertainty.

Global Trade Outlook

The WTO’s Global Trade Outlook and Statistics Report published last week reveals significant concerns over policy instability and the risk of further tariff escalations, particularly between the U.S. and China. WTO Director-General Ngozi Okonjo-Iweala expressed concern over the prolonged uncertainty, stating, “The enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, the most vulnerable economies in particular.”

The report warns that any reactivation of tariff measures, coupled with broader trade policy uncertainty, could worsen the outlook, pushing the contraction in goods trade to -1.5% in 2025.

Regional Impacts

• Asia and Europe: The WTO forecasts modest growth in both exports and imports for Asia (1.6% growth on both fronts) and Europe (1% growth in exports and 1.9% in imports).

• Middle East and Commodity Exporters: The Middle East and other commodity-exporting regions are expected to support global trade with steady energy exports.

• US-China Tensions: Trade diversion resulting from U.S.-China tensions could increase Chinese exports to regions outside North America by 4-9%. However, U.S. imports from China, especially in textiles, apparel, and electronics, are expected to decrease, potentially creating openings for alternative suppliers, including least-developed countries (LDCs).

Services Trade

Services trade, which accounted for 26.4% of global trade in 2024, is expected to face slower growth due to economic uncertainty and the weakened global goods trade. Demand for transport, logistics, and travel services may take a hit, with leisure travel among the first sectors to feel the effects.

• Regional Services Growth: The WTO predicts that Europe (5%) and Asia (4.4%) will lead regional services trade growth in 2025, while North America is expected to slow to 1.6%. The Middle East is forecast to grow by 1.7%, while Africa and Latin America are expected to see declines.

Looking Ahead

The WTO had originally projected a more optimistic outlook for 2025 and 2026, with trade growing in line with global GDP. However, the introduction of a wave of new tariffs since January prompted a significant reassessment.

In response to the challenges posed by trade policy uncertainty, Okonjo-Iweala urged WTO members to modernize trade rules and strengthen the multilateral trading system. “WTO members have the unprecedented opportunity to inject dynamism into the organisation, foster a level-playing field, streamline decision-making, and adapt our agreements to better meet today’s global realities,” she said.

Conclusion

The WTO’s updated trade forecast paints a cautious picture for 2025, with global goods trade set for a mild contraction due to ongoing geopolitical tensions and economic uncertainty. While services trade is expected to continue growing, its pace will be slower than anticipated. The outlook for global trade remains fragile, with significant risks stemming from the potential reintroduction of tariffs and policy instability. The coming months will be crucial in determining how these dynamics unfold.