WTO Forecasts 2025 Trade Trends: What It Means For Egypt

January 30, 2025

 

It seems like everything that can hurt global trade started after COVID-19 forced many countries to shut their borders for most of 2020 and early 2021. In the three years following their reopening, international trade has witnessed mounting risks from wars in the Middle East, Ukraine and countries seeking to expand their influence over the Red Sea and Gulf of Aden. 

The World Trade Organization (WTO) Global Trade Outlook said threats in 2025 will be diverse and intertwined, ranging from “regional conflicts, geopolitical tensions and rising protectionism” to inflation, consumption and countries’ monetary policy strategies. 

“There is a high degree of uncertainty associated with the current forecast due to the large number of risk factors present in the global economy,” said the WTO.

That has not stopped Egypt from investing heavily in upgrading its trade infrastructure and announcing plans to reform laws and regulations. The ultimate goal is to “reinforce Egypt’s standing as a regional and global investment and trade hub,” Hassan El Khatib, the Minister of Investment, told Parliament in December. 

Building local capability

Accounting for over 40% of GDP, according to the World Bank, trade is essential to Egypt’s economy. The benefits are not limited to imports and exports, but extend to collecting passage fees from cargo freighters using the Suez Canal, which ranks among the top four sources of dollars, along with exports, remittances, and tourism. 

Throughout 2024, the government invested in upgrading Egypt’s trade-related infrastructure. In February, it announced a list of 11 cities to build “public free zones” where any qualified business can operate. “The list includes land plots in 10th of Ramadan, New Alamein, Sadat City, New Borg El Arab, New October, New Obour, New Sohag, New Beni Suef, New Aswan, New Tiba and Capital Garden City,” the Cabinet’s Facebook page said.

In April, the Ministry of Transport and Industry said it is building seven logistics corridors to connect industry-heavy regions with seaports on the Red Sea and Mediterranean. Those new routes include adding trade corridors connecting Cairo, Alexandria, and Aswan. There also will be connections among Red Sea ports in Ain Sokhna, Safaga and Taba with ports along the Mediterranean as well as industrial zones in remote areas of the Eastern Desert.  

In addition, the government announced it wants to increase the country’s road network by 50% by 2030. Those roads would include “constructing 34 new corridors across the Nile River, up from 13 currently in use. Currently, over 95% of domestic cargo movement uses roads.

In November, the government announced a “roll-on/roll-off” line, where cargo shipments use Egypt as a transit station, moving inland without any stoppages from one port to another. “The launch of this service marks a pivotal moment in Egypt’s strategy to become a regional logistics and transportation hub linking Europe and Africa,” said a Cabinet statement.

In December, Hassan El-Khatib, minister of investment and foreign trade, announced reforms that aim to “reduce customs clearance time to just two days … to streamline trade processes and facilitate smoother operations for businesses,” reported the State Information Service. 

El-Khatib added he plans to “enact legislative reforms to customs, and import and export control laws to simplify trade regulations” and would “soon implement the refund of export burdens to eligible businesses,” a move meant to enhance productivity and competitiveness].

“These reforms are expected to improve Egypt’s position in global trade indices,” said a report from Naeem Brokerage. “The integration of the investment and foreign trade portfolios into a single ministry reflects the government’s commitment to fostering synergies between investment and trade for sustainable economic growth.”   

Uncertain times

Egypt’s investments to bolster trade competitiveness come amid worrisome global trends and forecasts. Rising prices of goods and services have hurt global trade flows since 2020. “Macroeconomic conditions and the war in Ukraine dictate that inflationary pressures would constrain real wages and incomes … particularly in advanced economies,” the WTO report said. 

Further suppressing global trade is the fact that central banks are combating inflation by raising interest rates to encourage saving over consumption, the report said.

Geopolitical tensions also have influenced trade. The war between Russia, a top grain and oil exporter, and Ukraine, known as “the world’s bread basket,” has caused wealthy Western superpowers to prohibit trade with Russia and impose strict limitations on its allies. 

Meanwhile, the Middle East is on the brink of regional discord, fueling fears the Red Sea is no longer a safe route for cargo freighters. That is further compounded by brewing tensions in Egypt, Eritrea and Somalia versus landlocked Ethiopia, which has allied with Somaliland, a breakout region of Somalia, and established permanent ports in Djibouti to control cargo movement in the Gulf of Aden and Red Sea. 

The WTO said those geopolitical tensions cause “fragmentation in trade flows, with exports and imports reorienting along geopolitical lines, [increasing] trade policy uncertainty.” 

That trend was evident when the WTO report divided countries into hypothetical blocs based on voting patterns in the U.N. General Assembly. Results show trading across blocs has slowed by 4% compared to trade within the blocs, the WTO said. 

Currently, this “fragmentation” is not geographic as “data do not show any increasing trend toward regionalization or near-shoring of trade,” the report said. 

Costlier trade

The WTO report singled out disruptions in the Red Sea as likely to have the biggest impact on global trade in 2025, as it accounts for 15% of international cargo. Those disruptions affect freighters traveling between Asia and Europe the most, as the Suez Canal accounts for 12% of global trade and a third of the two continents’ container shipping. 

The WTO estimated that since attacks on ships started in October 2023, the average number of weekly passages along the Red Sea declined 45% in February. Meanwhile, monthly volume of shipments through the Suez Canal has fallen 54%.

Freighters abandoning the Red Sea route are taking the longer Cape of Good Hope journey around the southern tip of Africa. “Rerouting increases the average distance of voyages between Asia and Europe by more than 55%.” That causes delays of six to 25 days, with 17 on average, the WTO said. 

The longer route means higher shipping costs. The WTO said carriers abandoning the Red Sea have seen costs increase 270%. However, the report stressed those hikes are “contained” as once the initial shock was over, shipping prices stabilized at higher thresholds. 

The new shipping rates are not exceptionally high, “less than one-third those seen after the Ever Given grounding or during the post-COVID-19 recession.” 

However, a breakdown shows divergence. Freighters carrying dry containerized bulks, such as grains and solid nonperishable products, have seen shipping costs “remain 40% lower than costs observed after the Suez Canal grounding.” However, tankers carrying perishables and liquid shipments like fuel and liquified natural gas “remain more than twice as high as the levels observed during the grounding.”

The WTO partly attributed the overall limited increase in maritime freight costs to some companies temporarily switching to rail or air transport.

That switch didn’t impact land and air freight costs for long, either. “Air cargo freight experienced a brief but significant increase in December 2023, followed by a substantial reduction in January 2024, reaching a slightly lower level than the costs observed in October 2023 before the attacks.” 

Also curbing overall maritime freight cost hikes in 2023 and 2024 was “weak consumer demand and existing … stocks,” the report said. 

Stable energy prices were another factor that kept shipping cost hikes in check. “Despite the rerouting of some petroleum tankers … crude oil prices have remained relatively stable in the weeks following the attacks in the Red Sea,” the WTO report said. “Similarly, the global price of natural gas has not shown any impact, as prices have actually decreased following the attacks in the Red Sea.” 

Meanwhile, global ship production increased 8% in 2023 in response to more cargo ships staying longer at sea — taking the longer routes — potentially causing bottlenecks at ports. “This surplus should help mitigate potential bottlenecks in the availability of container ships,” the WTO said. 

Uncertain forecast 

The WTO’s headline forecast is that global trade volumes will grow 2.6% and 3.3% in 2024 and 2025 after shrinking by 1.2% in 2023. That uptick is because global inflation should “gradually abate, allowing real incomes to grow again … boosting consumption of manufactured goods.”

The biggest uncertainty in the forecast is “unclear long-term consequences” of ongoing disruptions in the Red Sea. “Although the frequency of attacks on commercial ships in the Red Sea and the Gulf of Aden has fallen significantly … an increasing number of shipping operators have suspended transit in the region,” said the WTO.

Those decisions will affect global industries and economies differently in 2025. “While the economic impact of the Red Sea crisis has so far been relatively limited, some sectors, such as the automotive industry, fertilizers, and retail, have already been affected by delays and freight cost hikes.” 

The WTO said forecasting what will happen next in the Red Sea “will depend on the duration and severity of the attacks.” That will be hard to predict, as they are linked to political and ideological decisions, not economic ones.

Board members of shipping companies also will influence global trade in 2025 like never before. “The decisions made by the shipping companies regarding the risks and costs associated with traveling via the Red Sea or diverting their vessels” will be another unpredictable factor. 

Nevertheless, next year will likely witness significant changes to global trade flows and routes. “Shipping operators may choose to optimize their routing schedules by minimizing the time spent at sea,” the report said. “This could involve reducing the number of voyage combinations or adopting new route models.”

Meanwhile, the WTO report said countries benefiting from the current rerouting would likely “enhance the capacity of [their] alternative modes of transportation, addressing current limitations and offering more competitive freight costs” to ensure freight carriers continue to use them even after disruptions around the Red Sea subside.  

This article first appeared in January’s print edition of Business Monthly.