It is easy to forget about trade finance, what with the eurozone crisis and efforts to simultaneously rein in banks’ excesses while pushing them to lend more occupying the minds of politicians and central bankers worldwide.
Yet the impact of those challenges on this crucial component of the global financial system could be sufficient to undermine efforts to restore economic confidence.
World trade is under pressure. In September, the World Trade Organization downgraded its growth expectations for trade volumes for 2011 to 5.8%, with developed economies’ exports growing by 3.7% and shipments from developing economies increasing by 8.5%.
Downside risks to GDP have intensified in recent months, and where output goes, trade tends to follow. “This is the time to strengthen and preserve the global trading system, so it keeps performing this vital function,” says Pascal Lamy, director-general of the WTO.
The danger is that by focusing on the big picture of the eurozone debt crisis and enhancing the regulation of banks, the goal of strengthening and preserving the global trading system is being overlooked.