The World Trade Organization, citing turmoil in the global economy, on Friday cut its forecast for the growth of trade in 2011 from the 6.5 per cent it predicted in April to 5.8 per cent, and warned that the final figure could be lower.

The WTO said the move reflected the fact that trade had grown more slowly than expected in recent months and the outlook for the global economy is increasingly uncertain.

Since the April forecast, it said, developed economies in particular have been buffeted by strong headwinds.

These included the lingering effects of the tsunami in Japan, the prolonged impasse and credit downgrade in the United States, and the ongoing euro area sovereign debt crisis ... the WTO added.

Disappointing output and employment data have damaged business and consumer confidence and contributed to the recent turmoil in financial markets, it said.

Developing countries would fare much better than rich, industrialized powers, it said, adding that it now expected developed economies' exports to rise by only 3.7 percent this year, based on a GDP increase of 1.5 percent.

Developing economies were likely to increase their exports by 8.5 percent, based on a GDP increase of 5.9 percent, it said.

The new forecast came with a warning from the WTO economists who issued it that it was compiled amid an unusually high degree of uncertainty, which implies a slowdown in world trade rather than a decline.

The world economy may be at an inflection point where growth could pick up if policy makers devise a solution to the debt crisis that restores confidence to the financial system, it said.

On the other hand, the economists added, policy missteps could trigger wide instability along the lines of the crisis that followed the failure of (U.S. bank) Lehman Brothers in 2008.

Weighing those factors, we believe that risks to the forecast are firmly rooted on the downside, but we must not ignore the fact that there is some upside potential, they said.

The latest forecast follows a major recovery in 2010, when the volume of world trade jumped by 14.1 percent, bouncing back from a big drop of 12.1 percent in 2009 after growth of a low 2.3 percent in 2008.

Trade officials and global companies had been looking to 2011 to consolidate the advances of last year.

In a commentary on the figures, WTO chief Pascal Lamy urged the organization's 153 members -- including almost all significant trading nations except Russia which is expected to join soon -- not to slide into protectionism.

The multilateral trading system has been instrumental in maintaining trade openness during the (2008-09) crisis, thereby avoiding even worse outcomes, he said. Members must remain vigilant. This is not the time for go-it-alone measures.

In their report, the WTO economists said that during the crisis two years ago the body's members had generally been able to resist protectionist pressures.

But recently their collective will had been tested by weaker economic growth, high unemployment and forced austerity.

Another downturn in the global economy could strain their resolve to the breaking point and trigger a descent into self-destructive protectionism, they said.

(Editing by Tim Pearce)

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