Global trade to sustain recovery momentum amid protectionism

World trade’s recovery from the COVID-19 crisis hit a record high in the first quarter of 2021, increasing by 10 per cent year-over-year and 4 per cent quarter-over-quarter, according to UNCTAD’s latest Global Trade Update.

Similarly, the latest WTO Goods Trade Barometer showed that global merchandise trade is continuing to recover in 2021 following a steep but brief pandemic-induced drop in the second quarter of last year.

The latest barometer reading is broadly in line with the WTO’s current trade forecast issued on March 31, which predicted an 8 per cent pickup in the volume of world merchandise trade in 2021 following a 5.3 per cent decline the previous year. The relatively positive short-term outlook for trade is marred by regional disparities, continued weakness in services trade and lagging vaccination timetables, particularly in poor countries.

According to the UNCTAD report, the impressive rebound in Q1 2021 continued to be driven by the strong export performance of East Asian economies, whose early success in pandemic mitigation allowed them to rebound faster and to capitalise on booming global demand for COVID-19 related products.

The report forecasts that trade will continue growing in 2021, with the growth expected to remain strong in the second half of the year.

“Trade growth is expected to remain stronger for East Asia and developed countries, while still lagging for many other countries,” the report says.

The overall forecast for 2021 indicates an increase of about 16 per cent from the lowest point of 2020 (19 per cent for goods and 8 per cent for services).

The value of global trade in goods and services is forecast to reach $6.6 trillion in Q2 2021, equivalent to a year-over-year increase of about 31 per cent relative to the lowest point of 2020 and of about 3 per cent relative to the pre-pandemic levels of 2019.

But the positive outlook is largely dependent on reducing pandemic restrictions, a persisting positive trend in commodity prices, overall restraints from trade protectionist policies and supportive macroeconomic and fiscal conditions, the report says.

“Nevertheless, fiscal stimulus packages, particularly in developed countries, are expected to strongly support the global trade recovery throughout 2021,” the report says. “The value of global trade should also rise due to positive trends across commodity prices.”

“Global trade has recorded a faster recovery from the recession caused by the pandemic than in the last two trade recessions,” said UNCTAD economist Alessandro Nicita, who worked on the report.

He said it took four quarters after the start of the pandemic-induced recession for world trade to return to pre-recession levels. By the fifth quarter – Q1 2021 – global trade was higher than pre-crisis levels, with an increase of about 3 per cent relative to Q4 2019.

By contrast, it took 13 quarters for global trade to recover from the 2015 recession, which resulted from structural changes in East Asian economies and declines in commodity prices, and nine quarters to bounce back from the 2009 recession caused by the global financial crisis.

The report says in Q1 2021 the value of trade in goods was higher than the pre-pandemic level, but trade in services remains substantially below averages. “Global trade in COVID-19-related products remained strong during the quarter,” it says.

According to the report, import and export trends for some of the world’s major trading economies show that with a few exceptions, trade-in major economies recovered from the fall of 2020.

However, the large increases are due to the low base for 2020, and trade in many of the major economies was still below 2019 averages. The trend of a stronger recovery for goods relative to services is common to all major economies, the report finds.

It shows that China, India and South Africa fared relatively better than other major economies during Q1 2021.

China’s exports, in particular, registered a strong increase not only from 2020 averages but also in relation to pre-pandemic levels. In contrast, exports from Russia remained well below 2019 averages.

Trade recovery however remains uneven, the report notes, especially among developing countries, with exports from East Asia rebounding substantially faster.

East Asian economies are also behind the recovery of trade among developing countries (South-South trade). When trade figures from East Asian developing economies are excluded, South-South trade remains below averages.

The report shows that in Q1 2021 the value of exports remained below averages for countries with economies in transition, the Middle East, South Asia and Africa. Although South America’s exports increased relative to Q1 2020, they remained below 2019 averages.

It finds that in Q1 2021 the value of merchandise imports and exports of developing countries was substantially higher compared with Q1 2020 and Q1 2019 (by about 16%).

Also, in Q1 2021 trade continued to rebound not only in sectors related to COVID-19, such as pharmaceuticals, communication and office equipment, but also others like minerals and agrifood.

In contrast, the energy sector continued to lag behind and international trade in transport equipment remained well below averages, the report shows.