The global trade fell sharply in the first half of the year, as the Covid-19 pandemic upended the world economy. However, rapid government responses helped temper the contraction, and World Trade Organisation (WTO) economists now believe that while trade volumes will register a steep decline in 2020, they are unlikely to reach the worst-case scenario projected in April.
The volume of merchandise trade shrank by 3 per cent year-on-year in the first quarter according to WTO statistics. Initial estimates for the second quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year-on-year drop of around 18.5 per cent. These declines are historically large, but could have been much worse. The WTO's April 20 annual trade forecast, in light of the large degree of uncertainty around the pandemic’s severity and economic impact, set out two plausible paths: a relatively optimistic scenario in which the volume of world merchandise trade in 2020 would contract by 13 per cent, and a pessimistic scenario in which trade would fall by 32 per cent. As things currently stand, trade would only need to grow by 2.5 per cent per quarter for the remainder of the year to meet the optimistic projection. However, looking ahead to 2021, adverse developments, including a second wave of Covid-19 outbreaks, weaker than expected economic growth, or widespread recourse to trade restrictions, could see trade expansion fall short of earlier projections.
"The fall in trade we are now seeing is historically large, in fact, it would be the steepest on record,” said director-general Roberto Azevêdo. “But there is an important silver lining here: it could have been much worse,” he said, adding that it is genuinely positive news but we cannot afford to be complacent. “Policy decisions have been critical in softening the ongoing blow to output and trade, and they will continue to play an important role in determining the pace of economic recovery.”
“For output and trade to rebound strongly in 2021, fiscal, monetary, and trade policies will all need to keep pulling in the same direction,” he added.
In light of available trade data for the second quarter, the April forecast’s pessimistic scenario, which assumed even greater health and economic costs than what had transpired, appears less likely, since it implied sharper declines in the first and second quarters.
The Covid-19 pandemic and associated containment efforts intensified in the second half of March. Strict social distancing measures and restrictions on travel and transport were fully in effect in most countries throughout April and May, and are now increasingly being relaxed. These developments are reflected in a variety of economic indicators which, taken together, suggest trade may have possibly bottomed out in the second quarter of 2020. Global commercial flights, which carry a substantial amount of international air cargo, were down nearly three quarters (-74 per cent) between January 5 and April 18, and have since risen 58 per cent through mid-June. Container port throughput also appears to have staged a partial recovery in June compared to May. Meanwhile, indices of new export orders from purchasing managers' indices also started to recover in May after record drops in April. It is useful to keep in mind that these rebounds follow historic or near-historic declines, and will need to be monitored carefully before drawing any definitive conclusions about the recovery.
Looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth, which will see trade growth for 2021 come in at closer to 5 per cent, which would leave it well below the pre-pandemic trajectory. On the other hand, a quick return to its pre-pandemic trajectory would imply trade growth in 2021 of around 20 per cent, in line with the April forecast’s optimistic scenario.
The World Bank, OECD and IMF have all released forecasts showing significant slowdowns in global trade and GDP; all are broadly consistent with the WTO's forecast for the current year. The World Bank's recent forecast would see global output decline by 5.2 per cent in 2020, falling between the WTO's optimistic and pessimistic range. Other international organizations' GDP forecasts for 2020 are also increasingly negative, even as their trade projections stay roughly in line with the WTO's optimistic scenario. These estimates imply a less negative trade response to declining GDP growth than was observed during the global financial crisis of 2008-09.
The responsiveness of trade to changes in income can be measured by the ratio of the growth of merchandise trade volumes to real GDP growth at market exchange rates, also referred to as the income elasticity of trade. The implied elasticity under the WTO's optimistic forecast for 2020 was 5.3 – in line with that seen during the financial crisis. However, if world GDP instead contracts by the World Bank's estimated 5.2 per cent with a trade decline of 13.4 per cent.
The volume of merchandise trade shrank by 3 per cent year-on-year in the first quarter according to WTO statistics. Initial estimates for the second quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year-on-year drop of around 18.5 per cent. These declines are historically large, but could have been much worse. The WTO's April 20 annual trade forecast, in light of the large degree of uncertainty around the pandemic’s severity and economic impact, set out two plausible paths: a relatively optimistic scenario in which the volume of world merchandise trade in 2020 would contract by 13 per cent, and a pessimistic scenario in which trade would fall by 32 per cent. As things currently stand, trade would only need to grow by 2.5 per cent per quarter for the remainder of the year to meet the optimistic projection. However, looking ahead to 2021, adverse developments, including a second wave of Covid-19 outbreaks, weaker than expected economic growth, or widespread recourse to trade restrictions, could see trade expansion fall short of earlier projections.
"The fall in trade we are now seeing is historically large, in fact, it would be the steepest on record,” said director-general Roberto Azevêdo. “But there is an important silver lining here: it could have been much worse,” he said, adding that it is genuinely positive news but we cannot afford to be complacent. “Policy decisions have been critical in softening the ongoing blow to output and trade, and they will continue to play an important role in determining the pace of economic recovery.”
“For output and trade to rebound strongly in 2021, fiscal, monetary, and trade policies will all need to keep pulling in the same direction,” he added.
In light of available trade data for the second quarter, the April forecast’s pessimistic scenario, which assumed even greater health and economic costs than what had transpired, appears less likely, since it implied sharper declines in the first and second quarters.
The Covid-19 pandemic and associated containment efforts intensified in the second half of March. Strict social distancing measures and restrictions on travel and transport were fully in effect in most countries throughout April and May, and are now increasingly being relaxed. These developments are reflected in a variety of economic indicators which, taken together, suggest trade may have possibly bottomed out in the second quarter of 2020. Global commercial flights, which carry a substantial amount of international air cargo, were down nearly three quarters (-74 per cent) between January 5 and April 18, and have since risen 58 per cent through mid-June. Container port throughput also appears to have staged a partial recovery in June compared to May. Meanwhile, indices of new export orders from purchasing managers' indices also started to recover in May after record drops in April. It is useful to keep in mind that these rebounds follow historic or near-historic declines, and will need to be monitored carefully before drawing any definitive conclusions about the recovery.
Looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth, which will see trade growth for 2021 come in at closer to 5 per cent, which would leave it well below the pre-pandemic trajectory. On the other hand, a quick return to its pre-pandemic trajectory would imply trade growth in 2021 of around 20 per cent, in line with the April forecast’s optimistic scenario.
The World Bank, OECD and IMF have all released forecasts showing significant slowdowns in global trade and GDP; all are broadly consistent with the WTO's forecast for the current year. The World Bank's recent forecast would see global output decline by 5.2 per cent in 2020, falling between the WTO's optimistic and pessimistic range. Other international organizations' GDP forecasts for 2020 are also increasingly negative, even as their trade projections stay roughly in line with the WTO's optimistic scenario. These estimates imply a less negative trade response to declining GDP growth than was observed during the global financial crisis of 2008-09.
The responsiveness of trade to changes in income can be measured by the ratio of the growth of merchandise trade volumes to real GDP growth at market exchange rates, also referred to as the income elasticity of trade. The implied elasticity under the WTO's optimistic forecast for 2020 was 5.3 – in line with that seen during the financial crisis. However, if world GDP instead contracts by the World Bank's estimated 5.2 per cent with a trade decline of 13.4 per cent.
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