World trade ready for strong but uneven recovery after COVID-19

Prospects for a quick recovery in world trade have improved as merchandise trade expanded more rapidly than expected in the second half of last year.

According to new estimates from the WTO, the volume of world merchandise trade is expected to increase by 8.0 per cent in 2021 after having fallen 5.3 per cent in 2020, continuing its rebound from the pandemic-induced collapse that bottomed out in the second quarter of last year.

Trade growth should then slow to 4.0 per cent in 2022, and the effects of the pandemic will continue to be felt as this pace of expansion would still leave trade below its pre-pandemic trend.

The relatively positive short-term outlook for global trade is marred by regional disparities, continued weakness in services trade, and lagging vaccination timetables, particularly in poor countries. COVID-19 continues to pose the greatest threat to the outlook for trade, as new waves of infection could easily undermine any hoped-for recovery.

“The strong rebound in global trade since the middle of last year has helped soften the blow of the pandemic for people, businesses, and economies,” WTO Director-General Ngozi Okonjo-Iweala said.

Director-General of the World Trade Organisation Ngozi Okonjo-Iweala, and Robert Koopman, Chief Economist of WTO, conducted a press conference remotely on annual global WTO trade forecast at the headquarters of the World Trade organisation (WTO) in Geneva, Switzerland on Wednesday.

“Keeping international markets open will be essential for economies to recover from this crisis and a rapid, global and equitable vaccine roll-out is a prerequisite for the strong and sustained recovery we all need.”

“Ramping up production of vaccines will allow businesses and schools to reopen more quickly and help economies get back on their feet. But as long as large numbers of people and countries are excluded from sufficient vaccine access, it will stifle growth, and risk reversing the health and economic recovery worldwide,” she said.

The Director-General added that trade through value chains has helped countries access food and essential medical supplies during the crisis.

“Manufacturing vaccines requires inputs from many different countries. One leading COVID-19 vaccine includes 280 components sourced from 19 different countries,” she said. “Trade restrictions make it harder to ramp up production. The WTO has helped keep trade flowing during the crisis. Now, the international community must leverage the power of trade to expand access to life-saving vaccines.” Short-term risks to the forecast are firmly on the downside and centred on pandemic-related factors. These include insufficient production and distribution of vaccines, or the emergence of new, vaccine-resistant strains of COVID-19. Over the medium-to-long term, public debt and deficits could also weigh on economic growth and trade, particularly in highly indebted developing countries.

The forecast illustrates two alternative scenarios for trade. In the upside scenario, vaccine production and dissemination would accelerate, allowing containment measures to be relaxed sooner. This would be expected to add about 1 percentage point to world GDP growth and about 2.5 percentage points to world merchandise trade volume growth in 2021. Trade would return to its pre-pandemic trend by the fourth quarter of 2021. In the downside scenario, vaccine production does not keep up with demand and/or new variants of the virus emerge against which vaccines are less effective. Such an outcome could shave 1 percentage point off of global GDP growth in 2021 and lower trade growth by nearly 2 percentage points.

For the whole of 2020, merchandise trade was down 5.3 per cent. This drop is smaller than the 9.2 per cent decline foreseen in the WTO’s previous forecast in October 2020. The better than expected performance towards the end of the year can partly be explained by the announcement of new COVID-19 vaccines in November, which contributed to improved business and consumer confidence.

The volume of world merchandise trade plunged 15.0 per cent year-on-year in the second quarter of 2020 (revised up from -17.3 per cent in October) as countries around the world imposed lockdowns and travel restrictions to limit the spread of COVID-19. Lockdowns were eased in the second half of the year as infection rates came down, allowing goods shipments to surge back to near 2019 levels by the fourth quarter.

The impact of the pandemic on merchandise trade volumes differed across regions in 2020, with most regions recording large declines in both exports and imports. Asia was the sole exception, with export volumes up 0.3 per cent and import volumes down a modest 1.3 per cent. Regions rich in natural resources saw the largest declines in imports, including Africa (-8.8 per cent), South America (-9.3 per cent) and the Middle East (-11.3 per cent), probably due to reduced export revenues as oil prices fell around 35 per cent. In comparison to other regions, the decline in North American imports was relatively small (-6.1 per cent).