WTO Director-General Pascal Lamy, on 21 February 2007, addresses the WTO Forum in Jakarta

China surpassed the US as the world's second-largest exporter in the middle of 2006, according to data published Thursday by the World Trade Organization, and the emerging economic giant is pulling further and further ahead. Ireland slipped from 26th ranking of the world's leading merchandise exporters in 2005 to 29th place in 2006.

The rankings are in US dollars and most of Ireland's exports are priced in US dollars.

The annual rise in US dollar terms in 2006 for Ireland of 3%, was the lowest increase of the world's top 30 exporters and compared with a rise of 15% for the global number 1 - Germany.

Global export volume grew by 8% in 2006 , the second highest rate since 2000, according to preliminary figures from the World Trade Organisation.

WTO economists said world trade growth was likely to see a modest slowdown to 6% in 2007 in line with decelerating global economic activity, but this would still be around the average for the past decade. Ireland's trade volume expanded by 4.9% in 2006 and is forecast to grow at the same level this year.

Export growth from China rose 27% last year, outpacing all other major trading countries, the WTO said in its issue of global trade statistics for 2006.

While China finished behind Germany and the US in total exports for the full year, it overtook the US in the last six months of 2006 and is forecast to finish above the US in the 2007 totals. At current growth rates, China is projected to overtake Germany as the world's biggest exporter in 2008.

Risks in financial and property markets and large trade imbalances in goods and services mean increased uncertainty in 2007 and raise the prospect of weaker economic and trade expansion in the coming year, according to WTO economists. “A successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty,” Director-General Pascal Lamy said. “An agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today’s dynamic global marketplace.”

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In their preliminary assessment of trade in 2006 and prospects for the coming year, the WTO said that the consensus among forecasters of around 3% global economic growth in 2007 could slow merchandise trade growth to about 6% compared with 8% in 2006.

World merchandise exports in dollar terms rose by 15.4% to $11.76 trillion. About 40% of this value change can be attributed to inflation. Commercial services exports rose by 11% to $2.71 trillion. The increase in commercial services exports in 2006 was about the same as in the preceding year and for the fourth consecutive year less pronounced than that of merchandise trade.

By contrast, the world economy and trade grew vigorously in 2006, the 8% expansion in merchandise trade being the second highest since 2000. Growth in gross domestic product (GDP) — a measure of the size of the economy — was stronger than expected in Europe and Japan. The Chinese and Indian economies continued to record high growth.

Least-developed countries’ trade grew by about 30%, fuelled by higher prices for petroleum and other primary commodities. They and developing countries as a whole saw their shares of world merchandise trade reach record proportions. And for some of the smaller suppliers, fear of a setback in textiles and clothing in the face of competition from China proved unfounded in 2006.

“The strong performance of 2006 is welcome, particularly the gains made by developing and least-developed countries,” WTO Director-General Pascal Lamy said. “But this has to be consolidated. The uncertainties that lie ahead are a warning for us not to lose sight of the need to continue to reform the world economy.”

“The best contribution the WTO can make is to keep strengthening the multilateral trading system. One of the unsung achievements of the system is its stabilizing effect on world trade and the global economy. A successful conclusion to the Doha Round holds great potential for boosting growth and alleviating poverty. An agreement would also deliver more relevant trade rules, helping to establish a more stable and certain foundation for today’s dynamic global marketplace.”

Overview of major trade developments in 2006

The overall picture in 2006 was of trade expanding in real terms (i.e. ignoring price changes), faster than output by a large margin. The dollar value of world merchandise exports increased by 15% to $11.76 trillion in 2006. Commercial services exports were up by an estimated 11% and reached $2.71 trillion in 2006.

Price changes affected the nominal merchandise trade growth rates of countries and whole regions. The annual average prices for fuels and metals rose sharply, benefiting the export earnings of fuels and metal exporters.

The four regions with the highest share of fuels and other mining products in their merchandise exports (the Middle East, Africa, the Commonwealth of Independent States — CIS — and South and Central America) again recorded the strongest annual export rise in 2006.

The United States recorded its best annual merchandise export growth in more than a decade but its trade deficit continued to grow. However, when adjusted for price changes, US merchandise exports expanded faster than world trade and faster than US imports.

China’s trade growth continued to outstrip other major traders. China’s merchandise exports grew by 27%. In the second half of 2006, its merchandise exports started to exceed those of the United States, but for the whole year US exports still exceeded those of China.

Least-developed countries’ exports rose sharply in 2006 due to much larger values of fuels exports and stronger exports of other primary products and manufactured goods.

Developing countries’ share of world merchandise exports reached an all time record of 36%. The 0.9%,share for least-developed countries was also a record, the highest level since 1980, the earliest data kept by the WTO.

The picture for textiles and clothing is better for small suppliers with preferences in developed country markets than many had feared following the 2005 elimination of quotas and of the WTO’s Agreement on Textiles and Clothing.

As expected, China has enhanced its role as the leading supplier. Low and lower-middle income countries have seen their share of world exports of textiles and clothing increase markedly. The richer developing countries, including the newly-industrializing Asian economies (NICs) and Mexico, lost market share. Some small suppliers also lost shares, but others gained. Overall, in 2006, the least-developed countries increased their shares of developed countries’ textiles imports. The fact that China, India and Bangladesh performed well also means that millions of low-income workers benefited.

Details: the state of the world economy and trade in 2006

The year 2006 witnessed robust growth in the world economy and vigorous trade expansion. Global gross domestic production (GDP) growth accelerated to 3.7%, the second best performance since 2000. All major regions recorded GDP growth in excess of population growth.

Economic growth in the least-developed countries continued to exceed 6% for the third year in a row. A large part of the stronger global economy is attributable to the recovery in Europe, which turned out to be stronger than expected in early 2006. The United States economy maintained its overall expansion as weaker domestic demand was balanced by a reduction in the external deficit, mainly due to a faster export growth. In Japan somewhat faster economic growth was achieved despite weaker domestic demand reflected in a widening of its external surplus. China and India continued to report outstandingly high economic and trade growth.

Strong economic fundamentals in many key economies contributed to stronger investor confidence worldwide. General government deficits decreased in the United States, the European Union and in Japan and inflationary pressures were contained. A high level of global monetary liquidity combined with a low level of real interest rates contributed to a rally on global stock markets. Stock markets in emerging economies again recorded much faster growth than those in developed economies. Increased investor confidence in emerging markets is also reflected in the sharply reduced spread in interest margins between emerging market bonds and those of US government bonds.

The more favourable investment climate is also reflected in a sharp rise in global foreign direct investment (FDI) flows in 2006, which approached the record levels of the past. UNCTAD  reports that global FDI inflows surged by one-third to $1.23 trillion, the second highest level ever. The high growth of global FDI flows can be attributed partly to increased mergers and acquisitions activity and higher share prices. A high level of total net private capital flows to emerging markets was reported by the Institute of International Finance.

A further sign of high global liquidity is the rise in global foreign exchange reserves and the advanced re-payment of external public debt by a number of developing countries. Debt levels, measured by the outstanding debt to GDP ratios, decreased in all developing regions partly due to debt forgiveness. For the heavily indebted poor countries the debt levels in 2006 are estimated to have come down to half the level reported five years ago.

The real effective exchange rate of the US dollar continued to depreciate moderately, contributing to the readjustment of the US current account deficit (the trade deficit in goods and services). The exchange rates of the Asian economies with large current account surpluses fared differently in 2006. On an annual average basis, real effective exchange rates appreciated significantly in the case of the Republic of Korea and Singapore and moderately in the case of China. The Japanese Yen, however, continued to depreciate in 2006.

High global liquidity and a further steep rise in the price of fuels and nominal interest rates has not so far translated into higher domestic inflation rates. In developed markets consumer price increases averaged between 2% and 3%, and in the developing economies the rate was about 5%. In both developed and developing regions no acceleration in consumer price inflation was observed between 2005 and 2006. However, inflationary pressures can be detected in sectors for which supply is less elastic, such as real estate markets and auction prices for works of art.

The strong global macro-economic situation in 2006 provided a favourable framework for the expansion of international trade. In 2006, world merchandise exports grew in real terms (i.e. at constant prices) by 8.0%, compared to 6.5% in the preceding year. A large part of this trade acceleration can be attributed to the marked recovery in Europe’s export and import growth. Higher prices of fuels and metals led to a stagnation in the quantity of mining products traded internationally but the higher export earnings of oil exporters resulted in import growth in excess of the world average. High energy prices also invigorated demand for mining equipment and investment in machinery with high energy efficiency.

China’s merchandise trade expansion remained outstandingly strong in 2006. Office and telecom equipment continued to be the mainstay of Chinese export growth but significant gains in world market shares in 2006 could be observed in “traditional” exports such as clothing and “new” products such as iron and steel. Chinese imports again rose faster than global trade but continued to lag behind export growth.

Trade prospects for 2007

The marked correction in share prices observed on global stock markets at the end of February 2007 highlighted the increased uncertainty of investors with respect to the short-term prospects of the world economy. The consensus among forecasters favours a moderate deceleration in world economic growth in 2007. The economic fundamentals in the major economies are strong enough to keep global economic growth close to 3% (GDP measured at market exchange rates).

US domestic demand slowed markedly in the second half of 2006 and is expected to weaken further in the first half of 2007. Imports of goods and services contracted between the third and fourth quarter (on a seasonally adjusted basis) and should remain subdued in the first half of 2007. The slowdown in GDP growth in Europe is expected to be less pronounced than in the United States (and could be avoided in Japan), maintaining developed countries economic growth close to 2.5% in 2007. Demand in the oil importing countries is expected to benefit from on average lower import prices of fuels in 2007. Although endogenous factors have played an increasing role in developing country economic performance over the last decade, the slowdown in industrial markets is likely to contribute to less dynamic growth in the developing world, which is still expected to grow at least twice as fast as the developed markets. The most likely scenario is that GDP growth in 2007 will slow down in all regions, with relatively even growth among the regions in the developed and developing areas.

Leading exporters and importers in world merchandise trade, 2006 
(Billion dollars and percentage)