Global trade may grow 7 per cent in 2006, up from last year's revised 6 per cent expansion, the World Trade Organisation (WTO) said yesterday in a forecast it warned was uncertain.

In its annual review of trade trends, the WTO said the outlook was based on expected world economic growth of 3.5 per cent, slightly faster than the 3.3 per cent rise in 2005.

"World trade is expected to benefit from this slightly stronger economic growth - in particular in the European Union," the world trade body said in the report.

But it cited a number of downside risks, including the possibility that US economic growth could falter due to higher real interest rates and energy costs, and that the fledgling EU recovery would not gather momentum.

"The global economic situation at the beginning of 2006 remains full of uncertainties," the WTO warned.

Improved corporate finances and stock market gains seemed to point to a long-awaited recovery in investment in Europe, but private consumption remained fragile, it said.

WTO director-general Pascal Lamy said in the report that the global trading system was in transition, and the best way to handle it would be to conclude the Doha round of free trade negotiations by the end of the year.

"In such a climate of uncertainty, [ WTO] member governments must strengthen the global trading system by making it more equitable and relevant," he said.

World trade, as measured by merchandise exports, had grown by an exceptional 9 per cent in 2004 but growth slowed to about 6 per cent in real terms last year, reflecting weaker global economic activity in the period, the WTO said.

The final 2005 figure was slightly below the 6.5 per cent predicted this time last year.