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Gloomy Outlook for Global Trade

The textiles and apparel industry may be less affected than industries with big-ticket items, like cars or housing.

GENEVA — With the economic slump projected to deepen worldwide in 2009, marked by hikes in unemployment and declines in output and consumer demand, projections are for contractions in international trade, accompanied by calls for protectionist measures.

The textiles and apparel industry is not expected to be spared from the economic onslaught, but overall the sector is anticipated to be impacted less than more vulnerable ones, such as automobiles, housing, travel, machinery and other big-ticket items normally more affected by recessions, experts said.

Last month, the World Bank, in its report on global economic prospects for 2009, forecast world trade volume will decline for the first time since 1982, by 2.1 percent, down from 2008’s estimated 6.2 percent increase. The World Bank projected China trade to grow by only 4.2 percent, down from 10.1 percent expected for 2008.

Heiner Flassbeck, chief of globalization and development strategies at the United Nations Conference on Trade & Development, said he views the projections by the World Bank as “still overly optimistic,” and added he believes “China’s trade volume could be less.”

In a recent trade paper, Gary Clyde Hufbauer and Jeffrey J. Schott, senior fellows at the Washington-based Peterson Institute for International Economics, argued that even with bold fiscal and monetary responses guided by President-elect Barack Obama and Federal Reserve Board chairman Ben Bernanke, “hard times are likely to endure until 2010.”

The recession, they maintain, “will give plenty of time for opaque, but harmful, protectionist policies.”

Aside from industrial subsidies, this could include, they said, resorting to policies such as boosting applied tariffs to higher-capped bound levels — India hiked its steel tariffs soon after the G20 summit on the financial crisis in Washington in November. Other measures could see World Trade Organization members imposing a variety of trade remedies to protect domestic firms from foreign competitors, such as antidumping and safeguard quota measures.

Munir Ahmad, executive director of the International Textiles & Clothing Bureau, said the economic slowdown will affect demand for all goods, including textiles and apparel. The chief of the ITCB, an umbrella group for textiles and apparel exporting nations, said trade “litigation is the big fear in 2009” and anticipated there will be friction over textiles and apparel trade as competition heightens.

As of Jan. 1, China’s textiles and apparel trade to the U.S. is free of quota restraints agreed upon in 2005. On the troubled Doha round of global trade talks, Ahmad, echoing views shared by many top trade diplomats, said the negotiations will go on, but he expected “no breakthrough before early summer.”

People around the world are “uncertain about the future, in a wait-and-see mood. That’s why they’re not investing and withholding new investments all over the place. Wait until the dust settles,” said Flassbeck.

Formerly Germany’s state secretary for the economy, Flassbeck said not enough is being done by surplus economies such as the European Union countries, particularly Germany and Japan, to stimulate demand. However, he said the estimated $800 billion U.S. stimulus package being promised by President-elect Obama “is quite something” and worthwhile, and could see the American economy “come out of the recession first.”

“Sometime in the autumn of next year [2009], we’ll see a turnaround in the U.S.,” he predicted, but added that it will take at least six months to get the money flowing.

Flassbeck was more skeptical, however, about an early recovery in Europe and Japan.

On Dec. 29, a report by the International Monetary Fund warned that the current crisis, which started with the housing and financial sectors, “has now led to a strong fall in aggregate demand.”

To stem the slide, the IMF has suggested a fiscal stimulus package is needed equal to 2 percent of global gross domestic product.

Michael Finger, senior WTO economist, said domestic demand will continue to fall in the U.S. and other advanced economies this year, and the recent contraction of prices in the U.S. will continue in the first and second quarters, but will start to pick up in the third quarter.

“Business and consumer confidence indicators are all down,” Finger said. “The sentiment has to stabilize before it improves.”