As with world GDP, we usually produce a bottom-up forecast for world trade growth. We generate projections for exports and imports growth in various countries and regions, before aggregating these into a forecast for world trade.
Again, the IMF WEO forecast is often used as the starting point for our world trade forecast. We will move away from that if the BRC takes a different view on the prospects for world trade (as a whole, or prospects in certain regions), on the basis of the latest data or indicators, including the CPB World Trade Monitor, or comparisons with other forecasters such as the OECD.
A key diagnostic for our global forecast is the implied ‘trade intensity’ of world GDP growth, i.e. how much trade is likely to grow for a given GDP growth rate. Again, it is possible to compare the implied trade intensity of GDP growth in our forecast against other external forecasters, as well as against past values.
As well as providing the basis for our exports forecast, the world trade forecast also informs our UK imports judgements. That forecast is based on judgements about the future path of domestic demand and the import intensity of that demand, so we consider whether the implied import intensity of UK GDP growth is consistent with the trade intensity of global GDP growth. While the UK import intensity need not follow the global trend, if it does not, we need to assure ourselves that we have identified the economic rationale for that difference. This provides a useful sense-check on the forecast.
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