The global trade growth is expected to pick up gradually this year after a contraction in 2023 but regional conflicts, geopolitical tensions and economic policy uncertainty pose substantial downside risks, according to a WTO forecast released on Wednesday.

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The World Trade Organisation (WTO), however, lowered the trade growth projection for 2024 to 2.6 per cent.

In October last year, the organisation had projected that growth would be 3.3 per cent.

"Global goods trade is expected to pick up gradually this year following a contraction in 2023 that was driven by the lingering effects of high energy prices and inflation," the WTO said in a statement.

"It said the volume of world merchandise trade should increase 2.6 per cent in 2024 and 3.3 per cent in 2025 after falling 1.2 per cent in 2023.

"However, regional conflicts, geopolitical tensions and economic policy uncertainty pose substantial downside risks to the forecast," it added.

The decline in merchandise exports in 2023 was partly due to falling prices for commodities, such as oil and gas.

"In 2024 and 2025, inflation is expected to gradually abate, allowing real incomes to grow again in advanced economies, boosting consumption of manufactured goods. A recovery of demand for tradable goods in 2024 is already evident.

"This is related to an increase in household consumption linked to improved income prospects," it added.

It also said conflict in the Middle East has diverted sea shipments between Europe and Asia while tensions elsewhere could lead to trade fragmentation.

Rising protectionism is another risk that could undermine the recovery of trade in 2024 and 2025, the WTO said.

WTO Director-General Ngozi Okonjo-Iweala said, "We are making progress towards global trade recovery, thanks to resilient supply chains and a solid multilateral trading framework, which are vital for improving livelihoods and welfare.

"It's imperative that we mitigate risks like geopolitical strife and trade fragmentation to maintain economic growth and stability." The WTO report further said discussions of trade fragmentation are usually mostly concerned with goods trade, but fragmentation can also occur in services trade.

It said the data from the US appears to show evidence of recent "friendshoring" in information and communication technology (ICT) services.

During 2018 and 2023, the US imports from Asian trading partners (mostly India) fell from 45.1 per cent to 32.6 per cent.

On the Red Sea crisis, it said the conflict in the Middle East has threatened sea shipments through the Red Sea and Suez Canal, disrupting trade links between Europe and Asia.

Around 15 per cent of global trade passes through the Sea. The Suez Canal at its northern end handles around 12 per cent of world trade, connecting Asian ports to Mediterranean ports in Europe and North Africa.

"Attacks on commercial ships in the Red Sea and the Gulf of Aden, which began on 19 November 2023, have had a significant impact on trade," it said, adding, "there are concerns that a prolonged crisis could deal a severe blow to the global economy and reignite global inflationary pressures".

It added that attacks on commercial ships in the Red Sea and the Gulf of Aden have led several carriers to avoid transiting via the Red Sea altogether, causing the average number of weekly passages to plunge more than 45 per cent (264 in February 2024, compared to 489 a year earlier).

The Red Sea attacks have caused many carriers to reroute vessels around Africa. As a result, the number of passages via the Cape of Good Hope has more than doubled to 2,387 in February 2024 from 1,159 a year earlier.

"Rerouting increases the average distance of voyages between Asia and Europe by more than 55 per cent. This results in an extended travel time of six to 25 days, or 17 days on average, compared to the more direct Suez Canal route," the report said.

It added that the risk of port congestion and cancelled shipments also increases with rerouting. For example, several car companies temporarily suspended production at European factories due to shipping delays.