World Trade Uncertainty Weighing On Global Growth

Recent analysis from the IMF cites increasing uncertainty caused by trade tensions as a primary driver of sluggish global growth, a trend which moved the IMF to issue a downward revision to its global GDP growth forecast in the July edition of the World Economic Outlook. According to IMF estimates, the escalation of trade uncertainty observed this year could consume around 0.75 percentage points of global growth in 2019.

To track trade tensions globally, the IMF and Stanford University teamed up to develop the World Trade Uncertainty Index (WTU).* This index measures trade uncertainty in 143 countries based on the frequency with which the word "uncertainty" is mentioned in country reports produced by the Economist Intelligence Unit. And today the index sends a clear message as it continues to hit new 20-year records: uncertainty has taken hold.

• The surge in trade uncertainty since late 2018 coincides with the first tit-for-tat tariff increases between the US and China during 3Q2018. In the first quarter of 2019, the index rose sharply again after a significant increase in US tariffs on imports from China.

Trade uncertainty merits monitoring globally. The US-China bilateral dynamic, while certainly influencing recent Index scores, is not solely driving the overall index or the risk to global economic growth referenced by the IMF. 

• Trade tensions are registering in European countries on the periphery of Brexit, the Japan-South Korea trade dispute (or "economic war"), and key US trading partners Canada and Mexico.
• Advanced economies in general show the highest Index levels, followed by emerging markets.

*The WTU index methodology is similar to the well-known Global Economic Policy Uncertainty Index (EPU), however, the EPU uses a broad set of newspapers to monitor the use of the term uncertainty.