World merchandise trade could fall by up to 32% this year, new figures show, as the Covid-19 pandemic disrupts economic activity, with estimates of a recovery uncertain.
According to economists at the World Trade Organization (WTO), world merchandise trade is expected to fall by between 13% and 32% in 2020 as the coronavirus pandemic disrupts normal economic activity and life around the world. The decline will likely exceed the trade slump brought on by the global financial crisis of 2008-09.
Nearly all regions are expected to suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia hit hardest.
Global merchandise trade volume already fell by 0.1% in 2019, weighed down by trade tensions and slowing economic growth. The dollar value of world merchandise exports in 2019 fell by 3% to US$18.89trn.
The WTO says a 2021 recovery in trade is expected, but this is dependent on the duration of the outbreak and the effectiveness of the policy responses.
“These numbers are ugly – there is no getting around that,” says WTO director-general Roberto Azevêdo. “But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects.
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“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. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”
The WTO says the impact of the Covid-19 outbreak on international trade is not yet visible in most trade data but some leading indicators are yielding clues about the extent of the slowdown and how it compares to earlier crises.
The JP Morgan global PMI for March showed export orders in manufacturing sinking to 43.3 relative to a baseline value of 50, and new services export business dropping to 35.5, suggesting a severe downturn.
The WTO offers two scenarios for future trade performance: a relatively optimistic scenario, with a sharp drop in trade followed by a recovery starting in the second half of 2020; and a more pessimistic scenario with a steeper initial decline and a more prolonged and incomplete recovery.
“Under the optimistic scenario, the recovery will be strong enough to bring trade close to its pre-pandemic trend…while the pessimistic scenario only envisages a partial recovery.”
Looking at the volume of world merchandise trade, in an optimistic scenario, 2020 will see a decline of 12.9% and growth of 21.3% in 2021. Under the pessimistic scenario, 2020 will see a decline of 31.9%, and growth of 24% in 2021.
Dr Sheng Lu, associate professor in the Department of Fashion and Apparel Studies at the University of Delaware, recently analysed the worst case scenarios for apparel sourcing and trade.
As clothing stores are forced to shut down and consumers lose their jobs and struggle financially, he believes the demand for apparel in the EU and US – the world’s top two consumption markets – is expected to drop sharply.