World trade to fall sharply as Covid-19 continues to wreak havoc
The volume of world merchandise trade will fall sharply in the first half of 2020 as the Covid-19 pandemic disrupts the global economy, according to the World Trade Organization’s (WTO) Goods Trade Barometer released on Wednesday.
Declining world trade will leave many countries poorer as a global economic recession appears all but certain.
The global trade body’s barometer looks at current and near-term developments in world merchandise trade. It combines information on several component indices representing trade-related variables including export orders, international air freight, container shipping, automobile sales and production, electronic components and agricultural raw materials.
The index now stands at 87.6, far below the baseline value of 100, suggesting a sharp contraction in world trade extending into the second quarter. This is the lowest value on record since the indicator was launched in July 2016.
The current reading captures the initial phases of the Covid-19 outbreak and shows no sign of the trade decline bottoming out yet. This measure is consistent with the WTO’s trade forecast issued in April, which estimated that world merchandise trade could decline by between 13% and 32% in 2020, depending on the duration of the pandemic and the effectiveness of policy responses.
All of the barometer’s component indices are currently well below trend. The automotive products index (79.7) was weakest of all, due to collapsing car production and sales in major economies.
The sharp decline in the forward-looking export orders index (83.3) suggests that trade weakness will persist in the short term. Declines in the container shipping (88.5) and air freight (88.0) indices reflect weak demand for traded goods as well as supply-side constraints arising from efforts to suppress Covid-19.
Only the indices for electronic components (94.0) and agricultural raw materials (95.7) showed signs of stability, though they too remain below trend.
Trade had already been slowing in 2019 before the pandemic, weighed down by persistent trade tension and weakening economic growth. WTO trade statistics show that the volume of world merchandise trade shrank 0.1% in 2019, marking the first annual decline since 2009, during the global financial crisis.
Trade was relatively weak in the final quarter of 2019, but this is unlikely to have been influenced by Covid-19, which was first detected very late in that year.
WTO director-general Roberto Azevêdo said recently that 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,” he said.
Azevêdo said the immediate goal should be 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 said.