The WTO’s regular global trade forecast released today deserves special attention as it tries to grapple with the as yet hard-to-quantify impact of the COVID-19 pandemic on global economic growth and on trade.
Trade is always disproportionately negatively affected by economic shocks compared to global output. And this time is no different. Many have compared the current shock to the global financial and economic crisis of 2008 and 2009. But this time round, the scale of the disruption could be even greater and its nature different – with services taking a strong hit compared to the last crisis.
“World merchandise trade is set to plummet by between 13 and 32% in 2020,” writes the WTO. A rebound could be brisk in 2021 – but ultimately a lot depends on the policy decisions taken by governments across the world and whether these give economic players sufficient confidence to start trading and investing normally.
“As in 2008-09, governments have again intervened with monetary and fiscal policy to counter the downturn and provide temporary income support to businesses and households,” note WTO economists. This is seen as a positive confidence-building measure that also helps keep companies and households afloat through the crisis.
“But restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis. Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing.”
“Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth,”, the WTO’s economic forecasters note. Merchandise exports from the European Union alone slowed down by 2% in 2019, and the bloc’s imports by 4%. Worse outcomes can be expected in 2020.
The sectors most affected by the COVID-19 pandemic are those depending on complex cross border value chains. Countries affected range from China to Mexico and include EU members.
Services trade into focus
The major difference with the 2008/2009 crisis might be the negative effect of the current pandemic on services trade – for which quantification is more difficult to do. During the last crisis, services trade proved resilient.
“Services trade may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments,” notes the WTO.
“Unlike goods, there are no inventories of services to be drawn down today and restocked at a later stage. As a result, declines in services trade during the pandemic may be lost forever. Services are also interconnected, with air transport enabling an ecosystem of other cultural, sporting and recreational activities,” write the economists.
The WTO also highlights that some services sectors are expected to win out – notably information and communication technologies.