Global Trade – Analyzing the Covid Impact & Subsequent Recovery

Global trade has managed second successive quarter of recovery as per the latest UNCTAD (United Nations Conference on Trade and Development) report released a few days back. Global trade in goods in Q1’21 (Jan-March) increased by 10% over Q1’20 and more importantly, 3% over Q1’19, the pre-pandemic level. Yet, it would be too early to conclude that global trade and associated segments are out of the woods. Here is a look at some of the details.

Despite the recovery, there are significant gaps in the trade performance. While trade has recovered on aggregate basis, there is significant skewness in terms of countries/ regions. While East Asian economies (Japan, Singapore, South Korea, Taiwan, and Hong Kong) and China had picked up in the second half of 2020, developed nations picked up in Q1’21 whereas other regions/ developing economies are still lagging. While East Asian economies have grown at more than 16% over 2019, developing nations have recorded a decline of 2%. It would be pertinent to note that despite the initial backlash because of Covid-19 originating in that country, increased its share in global exports by about 1.7 percentage points in 2020. While USA lost more than 0.5 percent share in exports, its share in imports rose by nearly same percentage implying increasing trade deficit for the country. OPEC’s share in total exports fell by 1.3 percent, a result of sharp decline in fuel consumption as well as lower prices.

The other important worry is continued sluggishness in trade in services which remains lower than both Q1’19 and Q1’20. In terms of services exports, all major countries recorded decline except for China which grew by 22% over Q1’19 and 27% over Q1’20. The worst hit was Japan recording decline of as much as 24% in services exports. While trade in goods stood at little over $5 trillion during the quarter, services trade was close to $1.4 tr as per the report.

The figures for Q1’21 are in line with the trade performance during 2020 for both goods and services. As per the WTO figures, goods trade had managed a recovery of 2.5% in Q4’20 after a decline of about 11% in the first three quarters. For the entire year, goods trade stood at $17.6 trillion, down 7.4% over 2019. Trade in services declined almost 20% during the year at $4.9 tr. Travel suffered the worst, down from $1.45 tr to $0.53 tr, decline of 63%. The saving grace is performance of other commercial services, comprising of IT, consulting etc, which declined by barely 2.3%. The segment, at $3.3 tr, accounts for over half of services trade and its performance saved the day for services sector.

Yet another gap in trade performance is significant variation in sectoral performance, implying a kind of K-shaped recovery. Sectors which have seen maximum growth are Minerals at 33%, Pharma – 27%, Metals and Communication equipment, both by 20%. Pharma trade has increased to meet Covid-19 related needs and may maintain its growth for quite some time. The surge in demand for metals and minerals, largely led by infrastructure development, is quite perplexing. It may also be noted that minerals and metals have seen sharp increase in their prices. Metals price index is up almost 50% over Jan’20 and 76% from its lowest in April’20. Sectors which are still under stress are Energy and transport equipment. Energy and transport equipment sector have recorded decline of 5% and 19% during the quarter on top of over 30% decline in 2020. Yet another impact of Covid-19 is reworking of global value chain leading to nearshoring.

The highlight of the report is its comparison of the time taken for recovery during the current slump with the earlier recession of 2009 and 2015. While it took 10 and 14 quarters respectively for the trade to come out of recession on the previous two occasions, it has come out in just four quarters this time (and hopefully, stays there). It is quite understandable also since the current phase is not because of any inherent weakness or any imbalance in the global economy. Hopefully, as the vaccination covers larger section of population and if the newer variants of the virus are not resistant to vaccines, global economies should fully recover by the end of this year.

 

 

 

 

 

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