Trade

WTO predicts Middle East trade slowdown in 2025

November 20, 2024, 3:17 PM

Ngozi Okonjo-Iweala, WTO director-general, said the potential escalation of conflicts in the Middle East could lead to further increases in transport and energy costs — Ngozi Okonjo-Iweala, WTO director-general, said the potential escalation of conflicts in the Middle East could lead to increases in transport and energy costs

Exports will grow 5% this year
Growth likely to decline to 1%
The Trump factor looms large

Lower oil prices, the potential for conflicts to escalate and the impact of a Trump presidency are factors supporting the World Trade Organization’s prediction that trade in the Middle East will slow down in 2025, experts have said.

In its latest Global Trade Outlook and Statistics report, the WTO said Middle East exports will grow 5 percent this year but will slow to one percent in 2025.

The economists say imports this year will grow at a rate of nine percent – the highest rate in the world in 2024 – but will decline by 1 percent next year.

GDP in the Middle East is forecast to grow 4 percent in 2025, the report said.

Ngozi Okonjo-Iweala, WTO director-general, said the potential escalation of conflicts in the Middle East could lead to further increases in transport and energy costs, given the region’s importance in petroleum production.

“The impact could be most severe for the countries directly involved, but they may also indirectly affect global energy costs and shipping routes,” she said.

The report said the impact of the crisis in the Red Sea, which handles about 15 percent of global trade, has been contained to date but that other routes could be affected in a wider conflict. There would also be a heightened risk of energy supply disruptions given the region’s prominent role in petroleum production.

Higher energy prices would dampen economic growth in importing economies and weigh on trade indirectly, the report added.

James Swanston, Mena economist at Capital Economics, had a more positive outlook for trade, particularly for the Gulf countries that will start to raise oil output from the start of next year, which he said will result in a six percent increase in oil export volumes.

Swanston believes an 8 percent decline in imports “seems a bit overdone”: There may be an impact at a country level, he said, citing Egypt where the pound has weakened by around 40 percent against the dollar this year, implying lower goods imports. "But elsewhere the currency effects are far less likely to have caused the rising cost of importing goods,” Swanston said.

Steffen Hertog, an associate professor at the London School of Economics and Political Science, said despite ongoing diversification in the Gulf region, “oil remains an important driver of overall growth and trade in particular”.

He said Saudi Arabia’s rate of spending on various giga-projects would not be able to keep the same pace as it has done in recent years.

“At the same time, the non-oil economies of the region are economically stagnant, leading to stagnant overall trade for them,” he said.

Nasser Saidi, founder of Nasser Saidi and Associates and an AGBI columnist, predicted a change in trade patterns once the Opec+ unwinds supply cuts. He said recent trade agreements signed in the Gulf region will also have a significant impact on trade.

“UAE has been signing Cepas [comprehensive economic partnership agreements], which should have a positive impact on trade; the GCC have also been active, signing with Korea and New Zealand recently. China and India are currently in negotiations,” he said.

However, external factors, such as slow demand from China, could affect the price of oil and impact trade as a result, Saidi said.

“Escalation of the conflict in the Middle East, potential Trump tariffs and retaliatory tariffs, his Iran policy, all could add pressure on oil prices,” he said.

The Trump factor

President-elect Donald Trump has promised tariffs of 10 and 20 percent on imports from around the world and an even higher rate of 60 percent on Chinese goods.

The election promises are intended to improve America's trade deficit. Before Trump's last presidential term in 2016, the goods and services deficit was $480 billion (about 2.5 percent) of US GDP. Four years later, when he left office, the deficit had grown to $653 billion (about 3 percent of GDP), despite his tariffs.

Joseba Martinez, assistant professor of economics at London Business School, said the tariffs proposed for next year are much higher than those in Trump's first term.

Martinez said that a further turn towards protectionism by the US will change the way that international trade is ordered and may encourage countries to engage in protectionist policies. This, he said, "will have further spillover effects for Mena and the rest of the world”.

Swanston believes that much of the Middle East will be sheltered from the direct impacts of potential Trump trade tariffs.

“The trend of the past decade has been a declining share of exports going to the US. Only Jordan, whose around 25 percent of its goods exports go to the US, would feel the effects more,” Swanston said.

There could, however, be some knock-on effects from other economies, which Swanston said could cause demand for imports from the Middle East to weaken in places such as East Asia.

“The effects will be relatively small,” he said.