The trade decline for 2020 is less than previously forecast

The trade decline for 2020 is less than previously forecast

World merchandise trade is expected to decline by 9.2% this year, less than previously forecast and exceeding expectations to date, thanks to a surge in trade in June and July as lockdowns were eased.

According to new data from the World Trade Organization (WTO), the projected decline for the current year is less severe than the 12.9% drop foreseen under the more optimistic of two scenarios outlined in the WTO's April trade forecast.

Strong trade performance in June and July have brought some signs of optimism for overall trade growth in 2020. Trade growth in Covid-19 related products was particularly strong in these months, showing trade's ability to help governments obtain needed supplies.

Conversely, the forecast for a 7.2% rise 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 performance of trade for the year to date exceeded expectations due to a surge in June and July as lockdowns were eased and economic activity accelerated. The pace of expansion could slow sharply once pent up demand is exhausted and business inventories have been replenished. More negative outcomes are possible if there is a resurgence of Covid-19 in the fourth quarter.

A weak trade recovery that fails to return trade to the pre-pandemic trend is a distinct possibility, the WTO says. This would result in merchandise trade growth of around 5% next year, rather than 20% in the case of a rapid return to the previous trajectory.

"The incidence of Covid-19 worldwide has fallen from its peak in the spring, but it remains stubbornly high in many areas," says deputy director-general Yi Xiaozhun. "Trade has played a critical role in responding to the pandemic, allowing countries to secure access to vital food and medical supplies. Trade has also facilitated new ways of working during the crisis through the provision of traded IT products and services.

"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."

By region, all are expected to see big percentage increases in export and import volumes in 2021, but the WTO notes that this growth will be off of a reduced base. Thus, even large percentage changes may not translate into better material conditions. For example, imports into Asia and South America are both expected to grow by 6.2% and 6.5% respectively next year, but Asia's rise would follow on a modest 4.4% decline this year while South America's would be on top of a steep 13.5% plunge in 2020. In this case Asia's imports would have substantially recovered while South America's trade would still be deeply depressed.

In the second quarter, world merchandise trade volumes slumped by 14.3% as Covid-19 containment measures affected economies around the world.

The steepest declines were recorded in Europe (-21%) and North America (-20%) while Asia was relatively less affected (-7%).