Without a crystal ball, it is difficult to say with any certainty just how hard the COVID-19 outbreak will hit global trade. But, according to the latest update from the World Trade Organisation (WTO) in early April, the forecast is grim.
The WTO suggests that trade could shrink more steeply this year than as a result of the global financial crisis a decade ago. It could fall by between 13 percent and 32 percent in 2020, compared to 12.5 percent at the height of the financial crisis in 2009. This is the best-case scenario presented by the WTO. The most pessimistic version would be on par with the fall in global trade seen during the first three years of the Great Depression from 1929 to 1932. The wide range of figures reflects the huge level of uncertainty.
“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” said Roberto Azevêdo, director-general of the WTO. “The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself. The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic.”
He continued: “These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”
This year, nearly all regions are expected to suffer double-digit percentage declines in trade. Exports from North America and Asia will be hardest hit. Sectors with complex value chains, such as electronics and automotive, are likely to see steep falls. Services are not included in the forecast, but the WTO believes that trade in this area may shrink the most due to transport and travel restrictions brought in to limit the spread of COVID-19.
The regions set to fare best are Africa, the Middle East and the Commonwealth of Independent States (CIS), including associate and former member states, as those countries are heavy exporters of energy products, demand for which is relatively unaffected by fluctuating prices.
Global trade was already in decline before the pandemic took hold. In 2019, the dollar value of world merchandise exports fell by 3 percent to US$ 18.89 trillion, with a slight drop of ‑0.1 percent in volume. By comparison, in 2018 total volume has risen 2.9 percent. The WTO puts this down in part to trade tensions.
Rebound
Although global trade should rebound in 2021 as the COVID-19 pandemic recedes, the WTO says this is uncertain and would be predicated on several factors, the most important of which is countries working together for the common good. The international effort which has seen countries work to develop and roll-out treatments and vaccines for COVID-19 must be repeated on an economic level, with countries adopting similar monetary, fiscal and trade policies once the recovery begins in earnest.
For 2021, the WTO forecasts a rebound in global goods trade of between 21 and 24 percent, depending largely on the duration of the coronavirus outbreak and the effectiveness of policy responses.
Though there is much we do not know about the duration of the crisis and its ultimate impact, one thing is clear: the global economy faces a long road to recovery.
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Richard Summerfield