OECD sees trade in free fall, down 13.2 pct in 2009

PARIS (Reuters) - World trade is in free fall and should decline by 13.2 percent in 2009 as the economic crisis cuts demand across the globe, the Organization for Economic Co-operation and Development said on Tuesday.

In its latest set of forecasts for global economic growth, the OECD issued a stark outlook for 2009, issuing a warning that was even more severe than the World Trade Organisation’s already dramatic estimate of a 9 percent fall.

“International trade in free fall,” the report said.

“After steady annual growth at around 8 percent over the past half decade, world trade growth started to weaken in early 2008 and collapsed in the last quarter,” it said.

“This contraction of world trade is broad-based, and affects all regions and is the worst since comparable data exist.”

The scale of the decline underlines the problems facing policy makers meeting at the G20 summit of rich and emerging nations in London this week where measures to combat trade protectionism are expected to be one of the main items.

The OECD is forecasting a 4.3 percent fall in gross domestic product across the 30-member group this year with surging unemployment that will cut deeply into demand for consumer products from television sets to motor cars.

It showed countries that depend heavily on exports were set for especially big falls with Japanese GDP forecast to drop 6.6 percent and Germany set to decline 5.3 percent.

“The collapse in international trade explains why distress has spread so rapidly to many economies, particularly in Asia, which six months ago were expected to be only lightly touched by the financial crisis,” it said.

The report said a decline in trade finance, which has dried up as struggling banks have shut off the lending taps, has often been advanced as an explanation for the decline in export trade.

But it said that the fall was even more drastic than the tight credit conditions would suggest, possibly because statistical models underestimated the effect.

“Alternatively, the under-estimation of the trade contraction may mirror a stronger link between activity and trade as a result of continued globalization, notably the prevalence of global supply chains,” it said.

World trade tapered off sharply in the last half of 2008 as the economic crisis began to bite, showing growth of 2 percent over the whole year, after rising 6 percent in 2007, the WTO said last week.

The WTO has warned that protectionist measures were on the rise and risked choking off trade as an engine of recovery.

Writing by James Mackenzie; Editing by Victoria Main