Actinoid Group Industry Updates

Trade set to plunge as COVID-19 pandemic upends global economy

As the COVID 19 pandemic disrupts normal economic activity and life across the world, global trade is projected to plunge by 13% to 32% in 2020.

According to a WTO economist, the prolonged downturn in business activities due to the existence of the Covid-19 is more serious, and the decline is thought to be due to excess trade slump, Global Financial Crises, which occurred in 2008-2009.

Before the epidemic hit, trade was already declining due to trade disputes and slowing economic development. Analyzing goods and commercial services trading trends and studying how one behaves differently from the other, in fact in the opposite direction, allows us to gain a broader perspective on the dynamics of the global economy. According to WTO, world trade merchandise indicated a negative downturn in volume. Registering to -0.1% in 2019 compared to an increase of 2.9% in the previous year. Moreover, world merchandise exports declined by 3% recording a fall of $18.89 trillion. Meanwhile, global commercial services exchange increased by 2% in 2019, totalling $6.03 trillion in dollars.

Many economists are drawing parallels between the Covid-19 economic shock and the 2008-09 financial crisis. In the fact that the first experience is the same, they are somewhat different. The failure of the labour market, transportation, and travel to be sustainable due to Covid-19 constraints has triggered a more serious and long-term disturbance in the economy, while the government's direct actions by monetary and fiscal policies provided greater support for households and the economy in general in 2008-09.

Global merchandise trade volume is predicted to expand 10.8 percent in 2021, up from 8.0 percent in March. Trade expansion is expected to decelerate to 4.7 percent in 2022, up from 4.0 percent earlier.

For the future of the financial economy, there are two possibilities that have been proposed. One is a positive scenario, and the other is a negative scenario. The positive scenario predicts a large enough recovery to return trade to pre-pandemic levels, while the negative scenario only predicts a limited recovery. However, A drastic drop in trade volumes in 2020, in line with the negative scenario, but an almost rapid turnaround by 2021 or 2022, putting trade even closer to the positive scenario. Spending on investment goods and consumer durables will return to pre-crisis levels after the crisis has passed. On the other hand, if the epidemic lasts for a long time and/or recurring confusion becomes widespread, households and businesses are likely to be more vigilant about their spending.

According to WTO, under both scenarios, all regions will suffer double-digit declines in exports and imports in 2020, except for “Other regions” (which is comprised of Africa, Middle East and Commonwealth of Independent States (CIS) including associate and former member States). The fact that countries in these regions depend heavily on exports of energy goods, whose demand is largely unaffected by market fluctuations, explains the slight expected drop in exports.

If the pandemic is taken under control and trade resumes, most areas could see double-digit growth in 2021, with positive projections of about 21% and cautious projections of 24% – although from a far lower baseline. The level of volatility is very high, and it is entirely possible that the results for 2020 and 2021 will be higher or lower than anticipated.