Trade falls steeply in H1 as uncertainty trails outlook

World trade fell sharply in the first half (H1) of the year, as the COVID-19 pandemic upended the global economy, latest statistics from the World Trade Organisation (WTO) has shown.

Specifically, the volume of merchandise trade shrank by three per cent year‑on‑year in the first quarter (Q1) according to WTO statistics. Initial estimates for the Q2, when the virus and associated lockdown measures affected a large share of the global population, indicate a year‑on‑year drop of around 18.5%.

For Nigeria, its foreign trade volume fell from N10.12 trillion in the Q4 2019 to N8.30 trillion in Q1 2020, the latest report from the National Bureau of Statistics (NBS), showed. NBS attributed the decline in total merchandise to impacts of the coronavirus pandemic, which has been ravaging the world economy.

The WTO noted that while the declines are historically large, they could have been much worse. Looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth. On the other hand, a quick return to its pre-pandemic trajectory would imply trade growth in 2021 of about 20%, in line with the April forecast’s optimistic scenario.

The agency noted that monetary, fiscal and trade policy choices will play a significant role in determining the pace of recovery.

“The outlook for the global economy over the next two years remains highly uncertain. This is reflected in the range of GDP estimates from other international organizations, in some cases relying on multiple scenarios. The World Bank, OECD and IMF have all released forecasts showing significant slowdowns in global trade and GDP; all are broadly consistent with the WTO’s forecast for the current year,” it added.

The WTO’s April annual trade forecast, in light of the large degree of uncertainty around the pandemic’s severity and economic impact, set out two plausible paths: a relatively optimistic scenario in which the volume of world merchandise trade in 2020 would contract by 13%, and a pessimistic scenario in which trade would fall by 32%.

“As things currently stand, trade would only need to grow by 2.5% per quarter for the remainder of the year to meet the optimistic projection,” the WTO said.
However, looking ahead to 2021, adverse developments, including a second wave of COVID‑19 outbreaks, weaker than expected economic growth, or widespread recourse to trade restrictions, could see trade expansion fall short of earlier projections.

“The fall in trade we are now seeing is historically large – in fact, it would be the steepest on record. But there is an important silver lining here: it could have been much worse,” said Director‑General Roberto Azevêdo.

“This is genuinely positive news but we cannot afford to be complacent. Policy decisions have been critical in softening the ongoing blow to output and trade, and they will continue to play an important role in determining the pace of economic recovery. For output and trade to rebound strongly in 2021, fiscal, monetary, and trade policies will all need to keep pulling in the same direction.”

In light of available trade data for Q2, the April forecast’s pessimistic scenario, which assumed even greater health and economic costs than what had transpired, appears less likely, since it implied sharper declines in the first and second quarters.

The COVID‑19 pandemic and associated containment efforts intensified in the second half of March. Strict social distancing measures and restrictions on travel and transport were fully in effect in most countries throughout April and May, and are now increasingly being relaxed.

These developments are reflected in a variety of economic indicators which, taken together, suggest trade may have possibly bottomed out in H2 2020.

WTO statistics showed that global commercial flights, which carry a substantial amount of international air cargo, were down nearly three quarters (‑74%) between 5 January and 18 April, and have since risen 58% through mid-June. Container port throughput also appears to have staged a partial recovery in June compared to May.

Meanwhile, new export orders from purchasing managers’ indices also started to recover in May, after record drops in April. It is useful to keep in mind that these rebounds follow historic or near-historic declines, and will need to be monitored carefully before drawing any definitive conclusions about the recovery.