“The WTO now forecasts a 9.2% decline in the volume of world merchandise trade for 2020, followed by a 7.2% rise in 2021…. Strong trade performance in June and July have brought some signs of optimism for overall trade growth in 2020,” the Geneva-based organisation said in a report.
The forecast for next year is more pessimistic than the previous estimate of 21.3% growth, leaving merchandise trade well below its pre-pandemic trend in 2021.
“The current trade forecast of 7.2% for 2021 appears to be closer to the ‘weak recovery’ scenario than to a ‘quick return to trend’,” WTO said.
However, it cautioned that these estimates are subject to an unusually high degree of uncertainty since they depend on the evolution of the pandemic and government responses to it.
“There is some limited upside potential if a vaccine or other medical treatments prove to be effective, but their impact would be less immediate,” it said.
In April, the WTO had presented two possible scenarios for global trade. In an optimistic scenario, it said global merchandise trade could fall 13% in 2020 and rebound 21% in 2021. In a pessimistic case, the volume of global goods trade could drop as much as 32% this year with the possibility of a 24% increase next year. It had also said the decline is likely to exceed the trade slump brought by the global financial crisis of 2008-09.
However, on Tuesday, it said although the trade decline during the Covid-19 pandemic is similar in magnitude to the global financial crisis of 2008-09, the WTO said that the economic context is different and the contraction in GDP has been much stronger in the current recession while the fall in trade has been more moderate.
“The volume of world merchandise trade is only expected to decline around twice as much as world GDP at market exchange rates, rather than six times as much during the 2009 collapse,” it said.
As per the report, the pace of expansion could slow sharply once pent up demand is exhausted and business inventories have been replenished. The 14.3% quarter-on-quarter decline in world merchandise trade in the second quarter is the largest on record, but high-frequency data point to a partial rebound in the third quarter.
The resurgence of Covid-19 requiring further lockdowns could reduce global GDP growth by 2 to 3 percentage points next year. Other downside risks include an uncertain outlook for fiscal policy and challenging job markets in many countries. Together, these risks could shave up to 4 percentage points off of world merchandise trade growth in 2021. On the other hand, rapid deployment of an effective vaccine could boost confidence and raise output growth by 1 to 2 percentage points in 2021
“One of the greatest risks for the global economy in the aftermath of the pandemic would be a descent into protectionism. International cooperation is essential as we move forward, and the WTO is the ideal forum to resolve any outstanding trade issues stemming from the crisis,” said Deputy Director-General Yi Xiaozhun.
Asia’s exports are forecast to contract 4.5% in 2020 before growing 5.7% in 2021 while the projection for imports is -4.4% and 6.2%, respectively.
The decline in services trade during the pandemic was at least as strong as the fall in merchandise trade. Trade in agricultural products fell less than the world average in the second quarter while the drop in manufactured goods trade (-19%) was comparable to the decline in merchandise trade overall.
Trade in other types of electronics also held up during the crisis as households, businesses and governments upgraded computers and information technology infrastructure to facilitate working from home. Trade in pharmaceuticals rose during the pandemic as countries secured essential products from foreign suppliers, especially in personal protective equipment (PPE) which recorded explosive growth, up 92% in the second quarter and 122% in May.