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The global trade watchdog said that world trade fell sharply in the first half of the year, as the Covid-19 pandemic upended the global economy.
The World Trade Organization (WTO) on Tuesday said it expects global trade to drop around 18.5% in the second quarter of 2020, adding that restrictions being gradually lifted to contain the Covid-19 suggest that trade may have possibly bottomed out in the second quarter of 2020. The volume of merchandise trade shrank 3% year-on-year in the first quarter.
The global trade watchdog said that world trade fell sharply in the first half of the year, as the Covid-19 pandemic upended the global economy. However, rapid government responses helped temper the contraction, and WTO economists now believe that while trade volumes will register a steep decline in 2020, they are unlikely to reach the worst-case scenario projected in April.
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 WTO’s outgoing Director-General Roberto Azevêdo.
The Geneva-based organisation had in April said that the decline in world trade will likely exceed the trade slump brought by the global financial crisis of 2008-09 with merchandise trade expected to decline 13-32% in 2020 due to the Covid-19 pandemic.
Covid-19 pandemic and associated containment efforts intensified in the second half of March but travel and other restrictions 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 the second quarter of 2020,” it said.
The body, had in April, presented two possible scenarios for global trade. In an optimistic scenario, the WTO said global merchandise trade could fall 13% in 2020 and rebound 21% in 2021 — compared with a 0.1% contraction in 2019.
In a pessimistic case, the volume of global goods trade could drop by as much as 32% this year with the possibility of a 24% increase next year.
“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,” WTO said on Tuesday.
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. Trade growth for 2021 could come in at closer to 5%, which would leave it well below the pre-pandemic trajectory.
“On the other hand, a quick return to its pre-pandemic trajectory would imply trade growth in 2021 of around 20%, in line with the April forecast’s optimistic scenario,” it said, adding that monetary, fiscal and trade policy choices will play a significant role in determining the pace of recovery looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth.
There are several reasons why trade might respond less to changes in GDP than it did during the financial crisis. First, fiscal and monetary policies have arguably been rolled out more quickly and on a larger scale in the current crisis than they were in 2008-09.
The WTO forecast scenarios did not include an attempt to model either set of policy responses, since, at the time, these policies were just being introduced. Second, income support to households and expectations that the pandemic would eventually ease may have encouraged consumers to maintain consumption levels at a higher level than expected.
Finally, much of the decline in output has been concentrated in non-tradeable services such as hospitality, personal services and entertainment, which tend to be less import-intensive than manufacturing.
Source: The Economic Times