World GDP and trade growth slowed in 1998 as the Asian crisis deepened and its repercussions were felt increasingly outside Asia. The volume of world merchandise exports grew by 3.5 per cent in 1998 after an outstanding growth rate of 10.5 per cent in 1997.
This export volume growth rate compares with an average growth rate of 6.0 per cent in the period 1990-95. The deceleration in global output growth was less pronounced than for international trade in 1998, as world GDP rose by 2 per cent, or by 1 percentage point less than in 1997 (Chart I).
The deceleration of global merchandise trade growth continued throughout the year, leaving the global trade level in the fourth quarter of 1998 only slightly above the level reached at the end of 1997. All major regions experienced a marked slowdown of their trade growth in the course of 1998.
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The recent cyclical fall in commodity prices, which started in early 1997, continued unabated throughout 1998. Oil prices fell by 30 per cent and non- oil commodity prices by 20 per cent in 1998, with very different implications for various countries and regions of the world.
While the share of primary commodities (including processed food) in world merchandise trade was only slightly above one-fifth in 1997, it was more than two-thirds for the Middle East, Africa, and Latin America (excluding Mexico).
In a sample of 91 developing countries, 67 of them recorded a share of primary products in total merchandise exports above 50 per cent, reaching as high as 95 per cent in some cases.
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Prices of internationally traded manufactured goods and services also have declined in 1998, though considerably less than those of primary products. Exchange rate variations, which were large in the course of 1998, can have a major impact on the dollar prices of internationally traded goods.
However, as the dollar’s average annual appreciation vis-a-vis the ECU (now the Euro) was considerably smaller in 1998 than in 1997, West European export prices measured in dollar terms, decreased far less last year than in 1997.
This smaller decrease in Europe’s export prices more than offset the steeper price declines in all other regions. Therefore, despite the accelerated fall in commodity prices in 1998, the global price decline for all merchandise exports was 5.5 per cent, which was somewhat less pronounced than in 1997.
Trade performance in 1998 differed widely among regions. While oil- exporting regions recorded the steepest annual decline in merchandise exports, countries directly affected by the Asian financial crisis reported the steepest import decline.
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The contra dictionary forces of the Asian crisis and falling commodity prices were, however, attenuated by the robustness of continued economic growth in the United States and strengthened demand in Western Europe.
The reversal of private capital flows away from the emerging markets contributed to low interest rates in North America and Western Europe. In addition, the falling fuel prices led to weaker import prices and real income gains for net-fuel importing countries.
Western Europe, the world’s largest regional trader, was the only region not to record a deceleration in import growth in 1998 as compared to 1997. Western Europe’s import growth rate of 7.5 per cent was, however, less than the 10 per cent rate recorded by North America, Latin America and the transition economies.
In sharp contrast, imports into Asia fell by nearly 8.5 per cent, and stagnation or a decrease in import volumes is estimated for Africa and the Middle East.
Regional differences in the volume growth of exports are far less pronounced than for imports. All regions recorded a lower export expansion in 1998 than in the preceding year.
The transition economies and Latin America recorded the strongest volume growth. Asia’s export volume increased marginally, as the strong contraction of inter-Asian trade was only just offset by a sharp rise in extra-regional flows.
Western Europe’s export growth remained somewhat above the global average of 3.5 per cent, while that of North America fell below the average.
The dollar value of world merchandise trade declined by 2 per cent the steepest decrease since 1982. The export value of manufactured goods continued to rise slightly while that of agricultural products, metals and fuels declined.
These divergent developments, byproduct category in 1998 pushed the share of primary products below 20 per cent in current price terms for the first time in the post-World War II period.
Exports of commercial services recorded the first annual decline in dollar value since 1983. All the three major services categories (i.e., transport, travel and other commercial services) saw a decrease.
Both exports of goods and commercial services decreased slightly but at $5225 and $1290 billion respectively, but were still above the levels reached in 1996.
In its seventh year of expansion, the United States’ economy experienced acceleration in private consumption and continued double-digit investment growth. GDP growth was almost 4 per cent, unchanged from 1997.
The booming US economy stimulated intra-NAFTA trade and sustained exports and output in other regions. North America’s merchandise import volume rose by 10.5 per cent in 1998, which was the strongest growth of all Regions.
In value terms, North America’s merchandise exports decreased slightly in 1998, as volume growth decelerated and prices declined. North America’s merchandise imports, however, increased by 4.5 per cent in value terms, leading to a widening of the region’s merchandise trade deficit to $253 billion.
The evolution in North America’s commercial services trade mirrored that of merchandise trade, with export increasing only very slightly and imports rising by 4.5 per cent, reducing further the region’s surplus in services trade.