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The World Trade Organization (WTO) has warned that global trade growth will sharply decelerate in 2026 as the full effects of higher tariffs, weaker demand, and inventory corrections reverberate through the global economy — a scenario that could test India’s export resilience amid shifting global value chains.
In its Global Trade Outlook and Statistics (October 2025), the WTO revised next year’s global merchandise trade forecast down to 0.5 per cent, from the earlier 1.8 per cent, signaling a pronounced cooling after this year’s unexpectedly robust 2.4 per cent growth. The deceleration, economists said, marks the delayed impact of the tariff shock that began in mid-2025 but was initially masked by inventory build-ups and frontloaded imports in major economies.
“Cooling global demand and the unwind of inventories accumulated ahead of tariff hikes are expected to slow trade in 2026,” the report said. WTO Director-General Ngozi Okonjo-Iweala cautioned that while 2025’s resilience owed much to “the growth potential of AI and South–South trade,” the momentum “cannot offset the headwinds of policy uncertainty and rising protectionism.”
Tariff Frontloading Masks Fragile Recovery
The first half of 2025 saw a temporary trade surge, particularly in North America, as companies rushed to import goods before new tariffs took effect in August. This frontloading lifted global merchandise trade by 4.9 per cent year-on-year, and value terms rose 6 per cent, largely driven by AI-related goods such as semiconductors and servers.
But WTO economists now warn that this apparent strength was “borrowed” from 2026. As inventories are unwound and orders slow, the delayed tariff shock will take its toll. “Higher input prices and weaker shipment volumes already point to an inflationary rebound,” the report said, adding that reduced consumer confidence and squeezed profit margins may dampen investment through mid-2026.
A separate WTO analysis found that firms in tariff-hit sectors initially absorbed price hikes to maintain buyer relationships — a short-term buffer that cannot last. The pass-through of costs to consumers, coupled with reduced purchasing power, is expected to drag on trade volumes and global GDP alike.
India Caught Between Resilience and Exposure
For India, the WTO’s projections present both risks and opportunities. While the global merchandise trade slowdown could weigh on the country’s goods exports — particularly in manufacturing and engineering — India’s expanding digital and services sectors may cushion the blow.
Services exports, led by IT, software, and digitally delivered solutions, are expected to grow 6.1 per cent globally in 2025 and remain above 5 per cent in 2026. India, which accounts for a dominant share of global computer services exports, saw its outbound digital services rise 13 per cent in the first half of 2025, outperforming most major economies.
“India is relatively better placed than traditional manufacturing exporters because its trade basket is increasingly services-heavy,” said a senior economist at a Delhi-based policy institute. “However, any slowdown in Western investment or cloud infrastructure spending — both tied to the AI boom — will affect India indirectly.”
The WTO expects Asia to remain the fastest-growing export region in 2025 at 5.3 per cent, but growth will flatten in 2026 as demand from the US and Europe contracts. South and Central America, Africa, and the Middle East will see similar weakening trends. Only North America and Europe are projected to record a marginal export rebound next year after the current correction phase.
AI Boom Delays but Cannot Defeat Slowdown
Trade in AI-related goods — semiconductors, servers, telecom gear — grew 20 per cent year-on-year in early 2025 and contributed nearly half of the world’s total trade growth. Yet even this technology-driven expansion will not fully shield global trade from 2026’s slowdown.
The WTO noted that much of the AI trade surge was structural, reflecting long-term investments in digital infrastructure rather than a cyclical boom. “While AI-driven trade is expanding, it cannot fully offset contraction elsewhere, especially in consumer and capital goods,” the report said.
India, already emerging as a downstream beneficiary of this digital trade cycle, stands to gain if it can deepen participation in semiconductor manufacturing, electronics assembly, and cloud infrastructure — areas targeted under the government’s Semicon India and Digital India programs.
South–South Trade Offers Limited Cushion
Trade among emerging economies — so-called South–South trade — grew 8 per cent year-on-year in 2025, outpacing global averages and underscoring the diversification of global demand away from advanced economies. India’s rising commerce with Africa, West Asia, and ASEAN partners mirrors this shift.
Yet WTO economists caution that even this trend will lose momentum in 2026 as tariffs, currency volatility, and slowing investment flows spill over to developing markets. “The delayed tariff impact has simply shifted the burden of adjustment from 2025 to 2026,” the report noted.
India’s 2026 Challenge: Sustain Momentum Amid a Global Pause
With global GDP growth projected at 2.6 per cent in 2026, India will need to rely more on domestic consumption and its services-led export engine to offset a weaker external environment. The WTO’s data imply that India’s digital exports, logistics modernization, and South–South partnerships will be crucial in sustaining momentum.
In a world where protectionism threatens to erode gains from globalization, India’s trade strategy for 2026 may hinge on its ability to move up the AI value chain — turning the global slowdown into an opportunity for structural transition rather than stagnation.
