Hurt by the recession, global trade would decline 9% in 2009, the biggest contraction since the Second World War, the World Trade Organization has said. The collapse in global demand brought on by the biggest economic downturn in decades will drive exports down by roughly 9% in volume terms in 2009, the biggest such contraction since the Second World War, a statement from the agency said.

The WTO cited four reasons for the trade contraction - a simultaneous decline in demand in all regions, the increasing presence of global supply chains in total trade, a shortage of trade finance and protection.

The trade body estimates that the contraction in developed countries will be particularly severe with exports falling by 10% this year. In developing countries, which are far more dependent on trade for growth, exports will shrink by 2%-3% in 2009.

Economic contraction in most of the industrial world and steep export declines already posted in the early months of this year by most major economies - particularly those in Asia - makes for an unusually bleak 2009 trade assessment, WTO said in its annual assessment of global trade.

Although world trade grew by 2% in volume terms for 2008, it tapered off in the last six months and was well down on the 6% volume increase posted in 2007, the trade arbiter said. The WTO's preliminary estimate of 2% growth in world trade volume for 2008 is significantly lower than the forecast of 4.5% growth issued a year ago due to the unexpected and very sharp drop in global production in the fourth quarter of 2008.

Taking the European Union as a single entity and excluding internal EU trade, the five leading exporters were the European Union with 15.9%, China having 11.8%, the United States with 10.7%, Japan at 6.4% and Russian Federation with 3.9%.

Merchandise trade growth in real terms, which is adjusted to discount changes in prices, slowed significantly in 2008 to 2%, compared to 6% in 2007. In dollar terms, world merchandise exports increased by 15% in 2008, to $15.8 trillion, while exports of commercial services advanced 11% to $3.7 trillion.

Germany retained its position as the world's leading merchandise exporter in 2008 with exports of $1.47 trillion, while China came in second with $1.43 trillion.

One of the sectors hardest hit by the global recession has been the automobile industry. Japan's exports of automotive products to the rest of the world dropped by 18%, while exports to the U.S. dropped by 30% in the fourth quarter of 2008.

For the year, commercial services exports grew more slowly than goods exports, rising by 11% compared to 15% for goods. Exports of transport services rose 15% in 2008 while travel services and other commercial services increased 10%. The U.S. remained the largest exporter and importer of commercial services, with exports of $522 billion and imports of $364 billion.

The U.S. continued to lead all merchandise importers with shipments from the rest of the world worth $2.17 trillion and Germany was the second largest importer of merchandise, with a 7.3% share valued at $1.21 trillion. China came in third with $1.13 trillion or 6.9%) and Japan was fourth with $762 billion or 4.6%. France stood at the fifth position with $708 billion or 4.3%.

For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect - as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries, said Director-General Pascal Lamy.

Governments must avoid making this bad situation worse by reverting to protectionist measures which in reality protect no nation and threaten the loss of more jobs, Lamy added. Trade can be a potent tool in lifting the world from these economic doldrums. In London G20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective, he said.

Since the recession began to take hold in the fourth quarter of 2008 there has been little cause for optimism in the outlook for trade in 2009, the WTO said. Following the dramatic worsening of the financial crisis since September of last year, real global output growth slowed to 1.7%, compared to 3.5% in 2007, and is likely to fall by between 1% and 2% in 2009. This is the first decline in total world production since the 1930s, WTO said.

WTO economists warned that the extraordinary turbulence of world markets in recent months and the continued uncertainty about the near-term trajectory of the global economy makes gauging the preliminary 2008 trade estimates and 2009 projections unusually difficult.

Available monthly data for most major traders show large drops in merchandise exports and imports through the first two months of 2009. In February, China's exports were down 26% compared with the same month in the previous year and 28% compared with January.

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