By Sharon Atieno
Despite global trade showing signs of bouncing back from a sharp decline induced by COVID-19, experts caution that any recovery could be disrupted by the ongoing pandemic effects.
According to the World Trade Organization (WTO) Revised Trade Forecast, there will be a 9.2% decline in the volume of world merchandise trade for 2020, followed by a 7.2% rise in 2021, depending on the evolution of the pandemic and government responses to it.
Though earlier it had been predicted that trade would drop by 12.9%, strong performance in June and July have brought some signs of optimism for overall trade growth in 2020. The easing of lockdowns and acceleration of economic activity led to a surge during this period.
The forecast warns that the pace of expansion could slow sharply once pent up demand is exhausted and business inventories have been replenished. Moreover, resurgence of COVID-19 in the fourth quarter would have more negative outcomes.
Notably, the forecast for next year is more pessimistic than the previous estimate in WTO’s April trade forecast of 21.3% growth, leaving merchandise trade well below pre-pandemic trade in 2021.
Conversely, the global GDP is predicted to fall by 4.8% in 2020 before rising by 4.9% in 2021. This will be highly dependent on policy measures and on the severity of the disease.
Although the trade decline during the COVID-19 pandemic is similar in magnitude to the global financial crisis of 2008-09, the economic context is different.
In the current recession, the reduction in GDP has been stronger while the decline in trade has been more moderate. Thus, the volume of world merchandise trade is only expected to fall around twice as much as world GDP at market exchange rates, rather than six times as much during the 2009 collapse.
According to the WTO experts, this divergent performance during this period, is due to the nature of the COVID-19 pandemic and the policies used to combat it.
Lockdowns and travel restrictions imposed significant supply-side constraints on national economies, drastically reducing output and employment in sectors that are usually resistant to business cycle fluctuations, particularly non-traded services.
At the same time, robust monetary and fiscal policies have propped up incomes, allowing consumption and imports to rebound once lockdowns were eased.
The continuation of the recovery over the medium term will depend on the strength of investment and employment, which experts note could be undermined by new outbreaks of COVID-19, which might force governments to impose additional lockdowns.