Current Trends of Global Trade Volume and Direction
1. Global
Trade of Merchandise, Services, and Intellectual Property
- Total Volume and Value: In 2025, combined world trade in goods and services grew by approximately 4.7%, surpassing
world GDP growth of 2.9%. The total current US dollar value reached US$
34.65 trillion.
- Outlook: Growth is projected to slow to 2.7%
in 2026, matching the expected GDP growth rate, before picking up
slightly in 2027.
- Key Drivers: The primary drivers are surging demand
for AI-related goods, expansionary fiscal policies, and
"frontloading" of trade in North America. Conversely, risks
include high energy prices stemming from the Middle East conflict
and increased trade policy uncertainty.
2. World
Trade in Merchandise
- Volume Growth: Merchandise trade volume rose 4.6%
in 2025, significantly higher than earlier forecasts. However, it is
expected to drop to 1.9% in 2026 before rising to 2.6% in 2027.
- Current Value: The value of world merchandise exports
was US$ 26.26 trillion in 2025, a 7% increase from 2024.
- Direction and Regional Trends:
- Asia was the primary driver, contributing 71%
of the total merchandise trade volume growth in 2025.
- North America experienced heavy import
"frontloading" in the first half of 2025 due to anticipated
tariff increases.
- China's exports rose 9.2% in volume terms, as
firms expanded into alternative markets like Europe and ASEAN to offset a
sharp 20% decline in sales to the United States.
- Sector Trends: AI-enabling goods
(semiconductors, processors) accounted for 42% of total global trade
growth in 2025. In contrast, fuels and mining products saw a
value decrease of 4%.
3. World
Trade in Commercial Services
- Volume Growth: Services trade volume growth is easing
from 5.3% in 2025 to a projected 4.8% in 2026, with a slight
recovery to 5.1% in 2027.
- Current Value: Commercial services exports reached US$
9.56 trillion in 2025, up 8% over the previous year.
- Sector Dynamics:
- Travel: Growth is softening (5.2% in 2025) as
the post-pandemic recovery matures.
- Transport: Growth slowed to 2% in 2025,
reflecting lower shipping rates.
- Other Commercial Services: This category, which
includes digital services, rose by 10%.
- Direction: Europe and Asia contributed
nearly equally to growth in 2025 (43% and 42%, respectively), but Europe is
expected to become the main contributor (55%) in 2026.
4. World
Trade in Intellectual Property
- Growth Trends: Intellectual property-related services
exports grew by 9% in 2025.
- Comparative Growth: While still positive, this represents a
slowdown compared to the 12% growth recorded in 2024.
5. Digital
Trade
- Digitally Delivered Services: These
exports reached US$ 5.26 trillion in 2025, growing by 10%
year-on-year. They now account for 15.2% of total world exports of
goods and services.
- AI Integration: Firms are rapidly embracing AI for data
processing and software development, leading to an 11% rise in the computer
services trade.
- Regional Shares: Europe remains the largest
exporter (53.4% share), followed by Asia (23.3%), which saw a rapid
12% growth in 2025.
6. Global
Value Chains (GVCs)
- Fragmentation and Decoupling: GVCs
are showing signs of geopolitical alignment. Trade between
hypothetical "East/West" blocs is growing 4% slower than trade
within those blocs. Specifically, US-China decoupling has
intensified, with US imports from China falling by 29% in 2025.
- Trade Rerouting: Evidence suggests trade is being
rerouted through "connecting" economies (e.g., ASEAN members) to
bypass direct bilateral tensions.
- AI Restructuring: AI-related investment is boosting the trade
intensity of growth, as these technologies have a high import content
(70-90%).
- Shortening of Chains: Increased tariffs are projected to cause FDI in GVC-intensive sectors (textiles, electronics, machinery) to fall by 25%, potentially shortening global value chains
Current Trends of Foreign Direct Investment
Nepal Foreign Trade and Investment Overview
1. Merchandise
Trade
Nepal's
merchandise trade is influenced by its strategic location between India and
China, providing easy market access to some of the world's most populous
borders. The country benefits from duty-free and open border arrangements
with India and duty-free, quota-free access to the European Union.
As a member of regional and global bodies like the WTO, SAARC, and BIMSTEC,
Nepal participates in various multilateral trade frameworks. Trade growth is
further supported by specific treaties, such as the Nepal-India Trade Treaty,
which allows for preferential entry of Nepalese products into the Indian
market.
2. Customs
and Trade Flow Infrastructure
Merchandise
trade flows are managed and facilitated through several key institutional and
physical infrastructures:
- Facilitation
Units: The Custom & Revenue
Unit within the One Stop Service Centre (OSSC) handles customs agents,
excise licenses, and revenue-related queries for investors.
- Physical
Infrastructure: Trade
is supported by dry ports, Inland Container Depots (ICD), cargo
complexes, and an extensive network of roads and bridges.
- Regional
Connectivity:
Critical transit is managed through treaties of trade and transit with
India and transit and transport agreements with China.
3. Export
Products
Nepal
identifies several high-potential sectors for export and investment:
- Agro
and Forestry Products: This
includes processed fruits, tea, coffee, herbs, and spices (such as
cardamom/alaichi and saffron/keshar). Other exports include silk,
rubber, and natural fibers (jute, bamboo).
- Industrial
Goods: Potential exists in manufacturing
industries, including textiles and apparel, and industrial minerals
like limestone and coal.
- Specific
LDC Trends: General trends for
least-developed countries (LDCs), including Nepal, show that exports are often
concentrated in coffee, tea, cocoa, gold, and ores.
4. Import
Products
Nepal’s
import needs are primarily driven by its industrial and developmental
requirements:
- Industrial
Inputs: The country imports
significant amounts of machinery and equipment for energy,
infrastructure, and manufacturing projects.
- Energy
and Commodities: Like
many LDCs, Nepal is sensitive to global prices for liquid petroleum
and chemical fertilizers, which are essential for its economy.
- Foodstuffs: There is a dependency on imported feed
and foodstuffs, such as maize and rice.
5. Trade
Partners
- Primary
Partners: Due to geographic and
treaty-based links, India and China remain the most significant
trade and investment partners.
- Regional
Blocs: Nepal maintains active
trade relations with SAARC, ASEAN, and BIMSTEC member countries.
- International
Agreements: Bilateral Investment
Promotion and Protection Agreements (BIPPA) and Double Taxation
Avoidance Agreements (DTTA) have been signed with various nations,
including France, Germany, the UK, Mauritius, and the Republic of Korea.
6. Prospects
for Trade in Services
Services are
a rapidly growing segment of Nepal’s trade potential:
- ICT and
Digital Trade: Opportunities
are expanding in software development, data processing, BPO, and KPO.
Nepal has recently removed the minimum FDI threshold for IT sectors
through the Automatic Route to encourage this growth.
- Tourism: This sector offers diverse prospects in
adventurous tourism (trekking, rafting, paragliding), healing
centers (spa/massage), and cultural/religious tourism.
- Professional
Services: There is potential for
growth in engineering, technical consultancy, and educational services.
7. Foreign
Direct Investment (FDI) in Nepal
Nepal is
positioning itself as an emerging destination for FDI with a modernized legal
framework:
- Legal
Framework: FDI is primarily governed
by the Foreign Investment and Technology Transfer Act (FITTA), 2019,
and the Industrial Enterprises Act, 2020.
- Incentives: Features include 100% foreign
ownership in most sectors, guarantees against nationalization, and
competitive corporate income tax rates.
- FDI
Facts (FY 2080/81 till Jestha):
- A
total of 359 FDI projects were approved during this period.
- Top
Investors (Cumulative Share): China
leads with 45.34%, followed by India (21.54%), Hong Kong
(5.98%), and the United States (3.60%).
- Trends: While FDI commitments have grown
(reaching NRs. 44.4 billion in early 2080/81), actual inflows
remain significantly lower (e.g., NRs. 7.04 billion in the same period),
highlighting a gap between commitment and realization.
Country Classification
|
World economic situation and prospects
The global
economy faces "headwinds," with deadly conflicts, record-breaking
heat, and rising poverty and inequality marked as primary challenges in
2024. Progress toward the Sustainable Development Goals (SDGs) is currently too
slow, with only 17% of assessable targets on track for achievement
by 2030. Key impediments include mounting debt, trade tensions, and
climate-related disasters.
Growth
Projections for 2026–2027
- Trade
Volume: World merchandise trade
growth is projected to drop sharply from 4.6% in 2025 to 1.9% in 2026,
before a modest recovery to 2.6% in 2027.
- GDP
Growth: Global GDP growth is
expected to remain steady but subdued at 2.8% in both 2026 and 2027,
slightly down from 2.9% in 2025.
- Services: Commercial services trade volume is
also easing, falling from 5.3% in 2025 to a projected 4.8% in 2026.
Key Economic
Drivers and Risks
- The AI
Boom: A massive surge in demand
for AI-related goods (like semiconductors and processors) has
become a primary engine of trade, accounting for 42% of total global
trade growth in 2025. In North America, AI investment accounted for
approximately 70% of total investment growth in early 2025.
- Conflict
and Energy Prices: The
conflict in the Middle East poses a severe downside risk. If sustained,
high oil prices could shave 0.5 percentage points off merchandise trade
growth and 0.7 percentage points off services growth in 2026.
- Food
Security: Regional disruptions have
curtailed the supply of fertilizers (one-third of global urea and ammonia
passes through the Strait of Hormuz), increasing pressure on global food
systems.
- Trade
Policy: Increased trade policy
uncertainty and the use of "frontloading" (importing goods early
to avoid anticipated tariffs) created a one-off push in 2025 that is not
expected to repeat in 2026.
Structural
Shifts and Fragmentation
- Geopolitical
Alignment: Global trade is
increasingly aligning with geopolitical blocs. Trade between hypothetical
"East/West" blocs is growing 4% slower than trade within
those blocs.
- US-China
Decoupling: Direct trade linkages
between the world's two largest economies have weakened significantly,
with US imports from China falling by 29% in 2025.
- Digital
Transformation:
Digitally delivered services reached US$ 5.26 trillion in 2025, now
representing 15.2% of total world exports. This sector remains more
resilient to economic shocks than traditional transport or travel.
