World services trade activity likely to remain soft in Q1 2023

World services trade activity appears to have weakened in the fourth quarter of 2022, despite buoyancy in spending on travel, information and communication technology (ICT) services, and financial services, indicates the latest WTO Services Trade Barometer. The slowdown in growth was contributed by sectors such as construction services, container shipping and services PMIs, all of which contracted during the period.

Released on 22 December, the barometer reading suggests services trade activity is likely to remain soft in the opening months of 2023, with slowing growth in major economies weighing on the post-pandemic recovery. The Global Services Trade Activity Index provides an approximate measure of the real volume of world services trade, taking into account changes in consumer price inflation and exchange rates.

The Barometer index reading for the month of October fell to 98.3, slightly below its baseline value of 100 and well below the previous reading of 105.5 from the last release in June. A WTO statement said the findings are line with its Goods Trade Barometer issued in late November which indicated slowing merchandise trade volume growth in the closing months of 2022 and into 2023.

Among the services barometer's component indices, financial services (107.8), was most resistant to the slowing global economy, remaining firmly above trend. Indices for passenger air transport (105.2) and ICT services (103.2) also finished above trend, although the passenger index has fallen back closer to its baseline value of 100 representing on-trend expansion. In contrast to these positive signals, the component indices for construction services (92.9), container shipping (92.8) and services PMIs (91.1) all fell deep into contraction territory.

The Services Trade Barometer highlights turning points and changing patterns in world services trade. Unlike its counterpart for goods, the fluctuations registered by the services indicator coincide with movements in actual trade flows, rather than anticipating them. Readings of 100 indicate growth in line with medium-term trends. Readings greater than 100 suggest above-trend growth while those below 100 indicate the opposite.

According to the WTO, Services Trade Barometer is not intended as a forecast although it does provide clues about the trajectory of trade in the near future. “Its main contribution is to identify turning points and to gauge momentum in global services trade. As such, it complements conventional commercial services trade statistics”.