Muhammad Hammad

Trade Developments & Forecasts

World merchandise trade grew 4.6% in 2025, beating the 2.4% forecast, as demand for AI-related goods offset tariff uncertainty and policy risks. Asia drove 71% of that growth, supported by resilient emerging-market demand, expansionary policies, and North American frontloading ahead of US “reciprocal” tariffs.

Pre-conflict projections had 2026 merchandise trade growth slowing to 1.9% and global GDP at 2.8%. However, the Middle East conflict has curtailed Persian Gulf oil shipments, which account for 20% of global liquid petroleum use, pushing crude to ∼$90/barrel and LNG to ∼$16/MMBtu. If prices stay high, merchandise trade growth may drop to 1.4% and GDP to 2.5% in 2026.

Disruptions in the Strait of Hormuz affect not only oil but also fertilizers, with one-third of global urea and ammonia supplies transiting the strait. Major agricultural producers like Brazil, India, and Thailand rely heavily on Gulf fertilizer imports, accounting for 35%, 40%, and 70% of their urea imports, respectively. Higher fertilizer and energy costs may force farmers to cut usage or switch to less input-intensive crops, pressuring food security. Persian Gulf economies are also highly dependent on imported feed and foodstuffs, with an 80-100% import reliance for key grains, and alternative routes would raise costs.

Services trade growth slowed to 5.3% in 2025 from 7.8% in 2024 as the post-COVID travel recovery faded. Baseline forecasts see 4.8% growth in 2026 and 5.1% in 2027, but conflict-related disruptions to transport and travel, plus higher fuel costs, could cut 2026 growth to 4.1%. Europe is set to lead services growth in 2026 with 55% of the global increase, while Asia contributes 28%.

Combined goods and services trade grew 4.7% in 2025 versus 2.9% GDP growth, but it should slow to 2.7% in 2026, slightly below the projected 2.8% GDP growth. Upside exists if the conflict is short and AI spending stays strong, potentially lifting 2026 merchandise trade growth to 2.4%.

Macroeconomic Drivers

Despite tariffs in 2025, global trade was supported by resilient macro conditions, 2.9% GDP growth, falling inflation, supportive fiscal policies, and strong AI-related investment (especially in Asia).

Tariffs had a smaller impact than expected due to suspensions, exemptions, and front-loading of trade. Developing economies grew twice as fast as developed ones.

The Middle East conflict may slow global GDP growth to 2.5% in 2026, impacting energy-importing regions like Europe and Asia. AI investment may offset energy shocks, but risks include prolonged conflict, high energy prices, trade tensions, and market corrections. Upside risks include an extended AI boom with stable financing. Fiscal policies will likely stay expansionary, but central banks may pause rate cuts if inflation rises.

Trade Forecasts in Depth

Merchandise trade

Net oil exporters (Middle East, CIS, Africa) see rising imports, and net importers (Asia, Europe) see slower growth. Downside risks are relevant due to the Middle East conflict, but upside potential exists if AI trade stays strong. AI-enabling goods could add 0.5 points to trade growth in 2026. Regions will be impacted differently if energy prices stay high and AI trade surges.

Commercial services

Services trade growth was 5.3% in 2025. It is projected to be 4.8% in 2026 and 5.1% in 2027 (baseline scenario). The Middle East’s services exports were projected to grow 6.5% in 2026 but are now expected to contract 9.2% due to conflict. Asia’s services exports may rise 5.8% in 2026 (vs. 4.9% baseline). Transport and travel services are at risk due to geopolitical tensions.

The conflict will impact transport (1.0% growth in 2026 vs. 2.6% baseline) and travel (2.0% vs. 3.9% baseline). Other commercial services are expected to remain resilient (5.6% growth in 2026). Digitally delivered services are expected to grow by 6.3% in 2026. Europe’s services exports may grow by 4.9% in 2026, while Asia’s may grow by 5.8%. Risks are on the downside for global services trade if the conflict persists.

Trade-Related Indicators

Trade-related indicators like container shipping and new export orders from purchasing managers’ indices (PMIs) show merchandise and commercial services trade were strong in early 2026, before the Middle East conflict impacted trade. The RWI/ISL Global Container Throughput Index rose 6.1% year-on-year in January, driven by Chinese ports (up 11.4%), while Northern European ports saw weak growth (0.3%).

Global new export orders for manufacturing (51.4) and services (50.6) indicate growth, with Asian economies like China, Japan, and Korea showing accelerating manufacturing export orders. Services export orders rose in China, Germany, India, and Ireland. However, the Middle East conflict may disrupt these trends.

Trade in Value Terms

Merchandise trade

Global merchandise trade grew 7% in 2025, driven by office and telecommunications equipment (+19%), other machinery (+9%), and food (+7%). Fuels and mining products (-4%), iron and steel (-3%), and automotive products (-0.2%) declined. Africa’s exports rose 10%, led by cocoa, coffee/tea, and gold, while Asia’s exports grew 9%, driven by gold, machinery, and animal/vegetable fats.

Top exporters in 2025 included Hong Kong, China (+16.7%), the European Union (+6.8%), and the United States (+6.0%). Least- developed countries’ (LDCs) exports rose 11% to $309 billion, with coffee/tea, rubber, and cocoa leading growth. LDC imports also increased 11% to $375 billion.

Commercial services

Global commercial services trade exports grew 8% in 2025, reaching $9.56 trillion, with varying growth rates across regions. Africa led with a 15% increase, followed by the CIS (11%), Asia (10%), and Europe (8%). The US remained the largest services trader, with $1,209 billion in exports, while the EU had larger trade volumes ($1,763 billion in exports). Transport services’ growth slowed to 2%, while travel services rose 8% to $1.89 trillion, driven by Africa’s 16% growth. Other commercial services, including digital delivery services, grew 10% to $5.78 trillion.

Digitally delivered exports reached $5.26 trillion, up 10%, accounting for 15.2% of global goods and services exports. Europe led with a 53.4% share, while Asia grew 12%. Computer services expanded 11%, driven by AI adoption and cybersecurity demand. Telecommunications services rebounded 7%, reflecting data traffic growth. Looking ahead, geopolitical tensions and economic uncertainty may impact travel and trade growth.

The share of world trade on most-favoured-nation (MFN) terms

The share of world trade conducted on Most Favoured Nation (MFN) terms declined from 80% at the start of 2025 to 72% by February 2026, reflecting dynamic changes in global trade policies. Despite this decline, MFN tariffs remain crucial in the multilateral trading system, promoting stability, predictability, and fairness. The WTO-IMF Tariff Tracker recorded over 60 tariff actions in 2025, affecting 11% of global trade. Key sectors like minerals, electronics, and machinery still rely heavily on MFN terms (69-93%), while agriculture and textiles face more deviations. The MFN principle ensures equal treatment for all WTO members, and its importance persists despite growing preferential trade agreements.