Growth, but slower growth: What the ICC Trade Registry predicts for 2023

Trade volumes and macroeconomic context of 2022 and the ICC Trade Finance Register for 2023 reveal a nuanced interplay of growth and deceleration. 

In 2022, international goods trade flows reached $23.8 trillion, marking a 10.7% increase from the previous year. 

This trade growth, however, was primarily inflation-driven, with real trade flows expanding by only 3%. 

The uneven distribution of growth across sectors was notable, with consumer durables and electronics experiencing a decline, while the energy, metals, and mining sectors saw substantial growth due to soaring commodity prices.

The geopolitical landscape, particularly the conflict in Ukraine, has significantly disrupted supply chains, especially in energy and food sectors, contributing to an exceptional rise in commodity prices. 

This has, in turn, increased production costs and consumer prices, fuelling inflation to higher-than-anticipated levels.

Looking ahead to 2023 and beyond, the forecast suggests growth will persist but at a moderated pace.

2023 outlook for global trade: Growth, but slower growth

The 2023 outlook for global trade is one of cautious growth amidst a challenging geopolitical and macroeconomic landscape. 

The report reflects this sentiment, noting that while global inflation has receded from its 2022 peak, it remains high, particularly in commodities, with the Bloomberg Commodity Spot Index dropping 20% from mid to late 2022.

However, inflation is expected to stay elevated in the short term, dampening trade flows and being compounded by higher business financing costs due to increased interest rates.

Supply chains are undergoing significant reorientation, with companies nearshoring and diversifying away from China, particularly towards ASEAN countries. 

This shift is likely to offset trade declines but could also raise costs and cause further disruptions. 

The Russia-Ukraine conflict continues to reshape trade, with sanctions reducing trade volumes with Russia, while trade with alternative markets like India and Africa increases. 

For instance, Russia-China trade surged to a record $190 billion in 2022, up by 50%.

China’s economic slowdown is set to impact global trade, with early indicators showing a decline, such as a 20% year-on-year drop in South Korean exports to China as of August 2023. 

Despite these headwinds, ASEAN’s trade is expected to grow robustly, potentially doubling the global average growth rate.

BCG forecasts a 1.9% nominal decrease in goods trade from 2022 to 2023 due to falling commodity prices, yet real trade growth is projected to be positive at 2.2%. 

Sector-wise, energy, metals, and mining may see a nominal decrease but a real growth of 2.6%, indicating resilient demand. 

Overall, Boston Consulting Group (BCG) anticipates a steady nominal goods trade growth of 4.6% from 2022 to 2032, albeit revised down from previous estimates due to the current global climate. 

Real trade between the US and China is expected to contract significantly, while trade along other bilateral corridors, such as US-EU, is forecasted to strengthen. 

Service trade growth is projected to outpace goods trade, with a nominal annual increase of 5.7% and a real increase of 2.9% over the same period.

What this means for trade and supply chain finance

The report delineates a tempered outlook for trade and supply chain finance, adjusting the previous year’s more optimistic revenue projections in light of a decelerating global economy.

The report revises SCF revenue growth down to 6.3% for 2021-2022, reaching $63 billion, a deceleration attributed to a combination of softer volume growth, reduced product penetration, and margin compression. 

The forecast for 2023 predicts a further contraction of 7.4% in trade and SCF revenues, driven by diminished trade flows and a reluctance among businesses to incur higher financing costs.

Ravi Hanspal, Partner at BCG told TFG, “In 2022 we saw trade growth finally slow down after a ‘winning streak’ amid the current macroeconomic and geopolitical environment. A year on, many of these pressures have remained – and in several cases intensified – driving a forecast 1.9% nominal decline in goods trade in 2023 and a positive but weaker growth outlook to 2032.”

BCG Forecast of supply chain finance revenues, 2010 — 2032

Regionally, the report notes a shift towards non-USD currencies for funding, particularly in markets like China and in relation to Russian exports, potentially allowing local banks to gain market share. 

The transition from documentary trade to open account products has slowed, with documentary trade experiencing a resurgence due to heightened demand for risk mitigation, while growth in supply chain finance has been tempered by changes in reporting standards.

Looking ahead, the report projects a modest increase in trade and SCF revenues for 2023-2024, with an expected annual growth rate of 3.8% from 2022 to 2032, reaching $91 billion by 2032. 

This growth is slightly below the rate of goods trade expansion, with the anticipation of falling interest rates potentially compressing margins even as trade volumes recover.