Global trade growth seen at 1.4–1.9% as conflict clouds outlook

Global trade, long seen as the backbone of economic expansion, may be entering a far more fragile phase than headline numbers suggest.The World Trade Organization (WTO) has projected global merchandise trade growth to slow sharply to 1.9% in 2026, down from a robust 4.6% in 2025—a deceleration that, on the surface, appears cyclical. Yet, from an economist’s lens, the underlying story may be far more structural, and potentially unsettling.
At the center of this shift lies an increasingly volatile geopolitical landscape, particularly the intensifying tensions involving Middle East, which now threatens to reshape global supply chains, energy markets, and ultimately, trade flows.
A Fragile Equilibrium
The WTO’s baseline forecast assumes relative stability in energy markets. But this assumption is precarious. If the ongoing conflict involving Iran escalates further—especially through disruptions in the critical Strait of Hormuz—global trade growth could slip to as low as 1.4%.Such a scenario would not merely be a statistical downgrade. It would signal a broader economic transmission mechanism:higher energy prices → elevated production costs → reduced global demand → weaker trade volumes.For energy-importing regions, particularly in Asia and Europe, this could translate into a dual shock—slower trade and persistent inflation.
The Hidden Risk: Supply Chain Fractures
Economists often view trade through the prism of efficiency and comparative advantage. However, geopolitical disruptions challenge this very foundation.A blockade in Hormuz, for instance, could choke nearly one-third of global urea fertilizer flows. Countries like India, Brazil, and Thailand—key agricultural producers—may face rising input costs, potentially cascading into food inflation and export restrictions.In such a world, trade no longer acts as a stabilizer—it becomes a transmitter of shocks.
AI: The Unexpected Cushion… and a Question Mark
Ironically, one of the strongest pillars supporting global trade in 2025 came from a highly concentrated source: artificial intelligence.Trade in AI-related goods—semiconductors, chips, and advanced computing hardware—accounted for 42% of global trade growth, surging over 21% year-on-year to $4.18 trillion. This surge masked underlying weaknesses, including tariff tensions and slowing industrial demand.
But can this momentum be sustained?
WTO economists themselves describe continued AI-driven trade expansion as a “big question mark.” Investment cycles in technology are notoriously volatile, and any cooling in demand could expose the fragility of current trade growth patterns.
Services Trade: The Silent Casualty
While goods trade faces visible disruptions, services trade—often overlooked—may suffer quietly.Shipping delays, airspace restrictions, and rising logistics costs are expected to shave 0.7 percentage points off services growth, bringing it down to 4.1% in 2026. This marks a notable slowdown from 5.3% last year, underscoring how deeply interconnected modern trade ecosystems have become.
A System Under Strain, Not Collapse
Despite these pressures, the multilateral trading system has shown resilience. Around 72% of global trade still operates under the Most-Favoured-Nation principle, reflecting continued adherence to rules-based trade.As WTO Director-General Ngozi Okonjo-Iweala aptly noted, the system “may be battered, but it is far from broken.”Yet, resilience should not be mistaken for immunity.
The Bigger Economic Question
From an economist’s standpoint, the current slowdown raises a deeper concern:Is global trade merely experiencing a cyclical dip—or is it transitioning into a structurally slower era marked by trade divisions, geopolitics, and selective decoupling?If energy shocks persist, supply chains regionalize, and AI-driven trade loses momentum, the global economy may need to recalibrate its long-held reliance on trade as a primary growth engine.
And that leaves us with a more profound question:Is the world experiencing a temporary slowdown in trade—or the early signs of a fundamentally reshaped global economic order?

(Business Correspondent)