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“World trade primed for strong but uneven recovery after COVID-19 pandemic shock”

Macro Market Update – April 2021.

Key Highlights:

  • World merchandise trade volume is expected to increase by 8.0% in 2021 after falling 5.3% in 2020, a smaller decline than previously estimated.

  • Trade growth will likely slow to 4.0% in 2022, with the total volume of global trade remaining below the pre-pandemic trend.

  • World GDP at market exchange rates should increase by 5.1% in 2021 and 3.8% in 2022, after contracting by 3.8% in 2020.

  • Merchandise trade in nominal dollar terms fell in 2020 by 7% while commercial services exports declined by 20%.

  • Falling oil prices led to a 35% contraction in trade in fuels in 2020.

  • Travel services were down 63% in 2020 and are not expected to fully recover until the pandemic wanes.

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% in 2021 after having fallen 5.3% 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% in 2022, and the effects of pandemic will continue to be felt as this pace of expansion would still leave trade below its pre-pandemic trend.


World Merchandise Trade Volume, 2015Q1-2022Q4

Index, 2015=100

Sources: WTO and UNCTAD for trade volume data; WTO for forecasts.


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. "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 illustration in the chart above show 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%. This drop is smaller than the 9.2% 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% year-on-year in the second quarter of 2020 (revised up from -17.3 % 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.


Faster trade and output growth in the second half of 2020 was supported by major government policy interventions, including significant fiscal stimulus measures in the United States. These measures boosted household incomes and supported continued spending on all goods, including imports. In addition, many businesses and households adapted to the changing circumstances, finding innovative ways to sustain economic activity in the face of health-related restrictions on mobility. Effective management of the pandemic limited the extent of the economic downturn in China and other Asian economies, allowing them to continue importing. These actions helped prop up global demand and may have prevented an even larger trade decline.


Trade in nominal US dollar terms fell even more sharply than trade in volume terms in 2020. World merchandise export values were down 8% compared to the previous year, while commercial services receipts tumbled 20%. Services trade was especially weighed down by international travel restrictions, which prevented the delivery of services requiring physical presence or face-to-face interaction.


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% and import volumes down a modest 1.3%. Regions rich in natural resources saw the largest declines in imports, including Africa (-8.8%), South America (‑9.3%) and the Middle East (-11.3%), probably due to reduced export revenues as oil prices fell around 35%. In comparison to other regions, the decline in North American imports was relatively small (-6.1%).


In 2021, demand for traded goods will be driven by North America (11.4%) thanks to large fiscal injections in the United States, which should also stimulate other economies through the trade channel. Europe and South America will both see import growth of around 8%, while other regions will register smaller increases.

Much of global import demand will be met by Asia, exports from which are expected to grow by 8.4% in 2021. European exports will increase nearly as much (8.3%), while shipments from North America will see a smaller rise (7.7%). Strong forecasts for export growth in Africa (8.1%) and the Middle East (12.4%) depend on travel expenditures picking up over the course of the year, which would strengthen demand for oil. Meanwhile, South America will see weaker export growth (3.2%), as will the Commonwealth of Independent States (CIS), including certain former and associate Members (4.4%).


What accounts for the smaller-than-expected contractions in growth and trade?


Strong monetary and fiscal policies by many governments were probably the biggest factors. Much greater in scale and geographic coverage than the response to the 2008-09 global financial crisis, these policies helped prevent a larger drop in global demand, which would have reduced trade further. Fiscal policy in particular boosted personal incomes in advanced economies, allowing some households to maintain relatively high levels of consumption, and supporting more exports than would otherwise have been the case.


Lockdowns and travel restrictions caused consumers to shift spending away from non-traded services and towards goods. Innovation and adaptation by businesses and households kept economic activity from falling even more. Manufacturing supply chains were able to resume operations, and many people shifted to working remotely, generating income and demand. Finally, trade policy restraint by WTO members prevented protectionism from strangling world trade. As WTO monitoring has documented, many restrictive trade measures imposed at the start of the pandemic were rolled back, and new liberalising measures were introduced.


Despite continuing challenges, notably around vaccine trade, the multilateral trading system kept trade flowing and prevented worse outcomes, as members were restrained by commitments and economic self-interest. As during the global financial crisis, the foundation of the system proved sound.


Source: WTO (https://www.wto.org/english/news_e/pres21_e/pr876_e.htm)