Tuesday 25th June 2019
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Shrinking global trade and a crisis in the multilateral system is "bad news" for the likes of New Zealand, which relies on open access to foreign markets, says OECD Deputy Secretary-General Ulrik Vestergaard Knudsen.
International trade grew about 5.5 percent in 2017 but the latest figures show that's slowed to less than 1.5 percent. Vestergaard Knudsen says "there is a certain lag there so we don't know if we are even seeing positive trade growth at the moment." He was in Wellington presenting the OECD's latest survey on New Zealand.
"We are very concerned about this. We are constantly revising (world growth forecasts) downwards as is the IMF and we are pointing to trade tensions as the biggest factor through all this," he said.
The OECD's latest forecasts predict international trade to grow growth at around 2 percent, the weakest since the global financial crisis more a decade ago.
"This, of course, is alarming and if you look at the multilateral trade system in a wider perspective, not only are we seeing historically high levels of protectionism with trade fallout between US and China, we also have perhaps a trans-Atlantic trade war looming. Some are speculating about that," he said.
Vestergaard Knudsen warned that by December the dispute settlement mechanism at the World Trade Organization could come to a halt due to a lack of a quorum. Last year, the US blocked appointments at the WTO appellate body, which hears appeals in trade disputes between countries. The seven-member body currently has only three members - the minimum it needs - but two are set to complete their terms in December.
"The multilateral trading settlement system is supposed to provide transparently, liberalisation and dispute settlement and in all these three areas I think it is fair to say the multilateral trading system is in crisis," he said.
"This is bad news for small open economies like New Zealand and I don't think there is any reason to hide that," he said. "You are very dependent on exports to China and Australia."
Trade data today showed exports to China climbed 29.1 percent on the year in May and in the 12 months to the end of May were 22.1 percent higher than the year before. Annual exports to China reached $15.4 billion, out of a total $58.8 billion.
Exports to Australia, meanwhile, dipped 2.4 percent on the year in May and were 0.6 percent lower in the 12 months to the end of May. Annual exports to Australia were worth $9 billion.
The OECD survey on New Zealand was the first to focus closely on well-being and came on the heels of the government presenting its first Budget incorporating a new well-being focus for policymaking based on the methodology.
According to the OECD, current well-being in New Zealand is generally high but some weakness has emerged.
"Performance is very good for employment and unemployment, perceived health, social support, air quality and life satisfaction but not so good for earnings and household income, housing affordability and the incidence of long working hours," it said.
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