Report AIECE Working Group on Foreign Trade; Autumn 2008

The financial crisis is still spreading and deepening and is making inroads on the real economy. Forecasting is always "work in progress" but the exceptional situation today makes it feel like shooting at a moving target from a ship on the high seas. The forecasts of the Working Group were prepared at the beginning of October, starting off from data supplied by member institutes, prepared somewhere in the third quarter. We already took the liberty during our meeting to make bigger than usual adjustments to these national trade forecasts, to get closer to the rapidly deteriorating situation in the world economy. But it is clear that our efforts fell short of what we are experiencing today.Given the uncertainties, the Working Group did not think it opportune to prepare a completely new detailed trade forecast. Instead we present the data prepared early October, which already incorporate strong downward shifts in the overall outlook, but give ample attention to the current trends and risks. We also provide a model simulation estimating the possible effects on trade variables of the rapidly declining short-term growth outlook for the world economy, the weaker euro and the lower oil and other commodity prices. In the original forecast, world trade growth decelerated from 7.4% in 2007 via 5.0% in 2008 to 2.5% next year. The simulation suggests that world trade levels might actually decline in 2009.