Good News and Bad News on Global Trade

The good news is that global trade, devastated by the pandemic crisis, is likely to fall by less than was anticipated for 2020. But the bad news is that the rebound is going to be even weaker than originally predicted, according to the World Trade Organization (WTO) on Tuesday.

The WTO adjusted its previous forecast of at least a 12.9 per cent contraction in 2020 to say it now expected global trade to shrink by a less drastic level of 9.2 per cent.

But on the flip side, the WTO said that the economy would then grow by only 7.2 per cent next year, and not by the previous estimate in April of 21.3 per cent.

The WTO said global gross domestic product (GDP) is to fall by 4.8 per cent in 2020 before increasing by 4.9 per cent in 2021.

“World trade shows signs of bouncing back from a deep, COVID-19-induced slump, but WTO economists caution that any recovery could be disrupted by the ongoing pandemic effects,” the WTO said.

The WTO said that once pent-up demand has been met and business inventories have been replenished, the pace of trade expansion could slow sharply.

But even more, negative outcomes were possible if there is a resurgence of the coronavirus between now and the end of the year, the WTO said.

“Consensus estimates now put the decline in world market-weighted GDP in 2020 at minus 4.8 per cent compared to minus 2.5 per cent under the more optimistic scenario outlined in the WTO’s April forecast,” the WTO said.

“GDP growth is expected to pick up to 4.9 per cent in 2021, but this is highly dependent on policy measures and on the severity of the disease.”

Meanwhile, WTO deputy director-general Yi Xiaozhun said a resurgence of COVID-19 that brought on new lockdowns could reduce global GDP growth by two to three percentage points and cut as much as four percentage points from merchandise trade growth in 2021.

“The incidence of COVID-19 worldwide has fallen from a peak in the spring, but it remains stubbornly high in many areas,” Yi said at a news conference in Geneva.

“Trade has played a critical role in responding to the pandemic, allowing countries to secure access to vital food and medical supplies. One of the greatest risks for the global economy in the aftermath of the pandemic would be a descent into protectionism,” he said.

On the positive side, the WTO said that rapid deployment of an effective vaccine could boost confidence and raise output growth by one to two percentage points in 2021.

“This would add up to three percentage points to the pace of trade expansion,” the WTO said.