9 January 2024 (Lloyd's List) - GLOBAL trade is set to rebound "modestly" in 2024, despite the current disruptions in the Red Sea, but longer term growth is likely to become slower and more fragmented as barriers to trade continue to increase, according to two new reports.

Economists at HSBC expect the world exports of goods and services to grow by 1.8% in 2024 and 3.4% in 2025, after contracting by 0.7% last year.

"Inventory replenishment by businesses following a wave of destocking and/or a sustained pick-up in demand could help boost world trade, particularly in the second half of this year, and in turn help to buoy broader global economic prospects," HSBC said.

But it also urged caution, warning that high interest rates could continue to limit consumer goods spending.

Additionally, demand in China - key to supporting intra-Asia trade - remained uncertain.

"An escalation in geopolitical conflicts in the Middle East risks disrupting Red Sea trade further and exacerbating shipping delays caused by drought restrictions in the Panama Canal," HSBC said.

It warned that the trade environment had become "highly uncertain" as governments became more protectionist in their trade policies.

The year ahead was set to be another "eventful and politically charged year for global trade," HSBC said.

"As a result, the ongoing evolution of supply chains is set to continue this year."

Meanwhile, a longer term outlook from Boston Consulting Group expects global trade in goods to grow at an annualised rate of 2.8% per year through to 2032.

But over the next 10 years, trade growth will trail global GDP growth, reversing the trend of the past 20 years as part of a "fundamental shift" from the trade-led globalisation that had prevailed during the post-Cold War era.

"The emergence and growing prominence of trade blocs is having a dampening effect on traditionally deep and fast-growing trade lanes such as China-US and China-EU," BCG said.

Trade over the next decade would be characterised by five emerging dynamics, it added.

North America would remain a stronghold, with the US-Mexico-Canada Agreement driving trade in the region to grow by $466bn in the coming decade.

China, meanwhile, would face "persistent trade tensions" and growing trade barriers that would affect trade between China and the West.

"The projected fall-off in US-China trade is one of the most significant developments in the updated global trade map, with 2032 trade value forecast to fall $197bn from its 2022 level," BCG said.

"This is more than three times the $63bn contraction forecast one year ago."

Trade in southeast Asia, however, would grow by a cumulative $1.2trn as the region emerged as a key destination for companies seeking to adopt a China +1 strategy.

India, with its low-cost structure and growing domestic market would benefit the most from companies seeking to diversify their global footprint, BCG said.

"Expanding trade connectivity, as evidenced by new and under-negotiation trade agreements, are helping to increase India's projected external trade in the next 10 years by $393bn, including $180bn with the US and EU and $124bn with China."

Russia, however, would likely remain out in the cold as long as the stalemate in Ukraine lasted. Trade with Russia had not been eliminated, but redirected, with much of its former trade with Europe now going towards its Bric partners.

"While Russia's trade with the EU in 2032 will fall by $222bn, compared with 2022, its trade with China and India will grow by $134bn and $26bn, respectively," BCG said.

Overall, cooling cooperation between countries would see the emergence of regional trade blocs as production was brought closer to end markets.

"Blocs are attractive for countries seeking to limit geopolitical friction by trading with entities seen as friendly partners, especially where trade agreements exist," it said.

But this would also mean a more fragmented global market.

"The more cooperative trade environment that enabled companies to build global supply chains in recent decades is quickly being replaced by a more uncertain world characterised by a mix of smaller regional and local players," BCG said.

"In the short term, companies should take several steps to adapt."