New estimates show that world trade will drop by five per cent this quarter, compared with the 2019 level. While this is an improvement over the nearly 20 per cent decline in the second quarter of the year, it is still not enough to pull trade out of the red. This is according to the UN trade and development body (UNCTAD) in its latest COVID-19 era Update. Although global trade is making a frail recovery, the outlook the UN body stressed remains uncertain.
Furthermore, UNCTAD expects the value of all goods traded to contract by seven to nine percent compared to last year, depending on how the COVID-19 pandemic evolves in the winter months. “The uncertain course of the pandemic will continue aggravating trade prospects in the coming months”, said UNCTAD Secretary-General Mukhisa Kituyi. “Despite some ‘green shoots’ we can’t rule out a slowdown in production in certain regions or sudden increases in restrictive policies.”
While the projection represents a decrease, the figure is a more positive result than previously expected, as UNCTAD had projected a 20 per cent year-on-end drop for 2020, back in June. UNCTAD reported that as of July, overall, global trade is expected to fall by about 7 per cent in 2020 under the assumption that the trend observed in quarter 3 continues into quarter 4.
The lower bound for 2020 is at about 9 per cent and considers the possibility of a resurgence of the COVID-19 pandemic during the coming months and the prospect of a deteriorating policy environment, with sudden increases in trade restrictive policies. Leading indicators, such as the Purchasing Manager Indices (PMIs) still signal substantial uncertainty for international trade in the coming months. It is expected that Q4 2020 will remain on a negative trend, about 3 per cent lower than in Q4 2019.
However, this figure is still very uncertain due to persistent concerns about the effects of COVID-19 on economic activity in the coming months, which may result in a double dip trend. In its analysis of global trade at the sectoral level, economic disruptions brought about by COVID-19 have affected some sectors significantly more than others. In Q2 2020, the value of global trade in the automotive and energy sectors was about half of what it was in Q2 2019.
Trade it added has also declined significantly in chemicals, machineries, metals and ores, and precision instruments. On the other hand, imports increased in office machinery and textiles and apparel. Such increases are linked to the COVID-19 pandemic as these sectors include home office equipment and protective equipment such as masks. The data for July and August 2020 indicates similar patterns. The value of international trade in the energy and in the automotive sectors was still substantially below its levels of 2019.
On the other hand, increases in demand of home office equipment and personal protective gear resulted in positive growth rates for trade in the communication equipment, office machineries, and textiles and apparel sectors. The report also includes an assessment of trade in different sectors, with the energy and automotive industries hardest hit by the pandemic.
Meanwhile, sectors such as communication equipment, office machinery, and textiles and apparel, have seen strong growth due to the implementation of mitigation responses such as teleworking and personal protection measures.