Global trade is showing signs of recovery with the World Trade Organization (WTO) revising its forecast upwards for trade volumes this year, but any short-term progress made must be met with caution as the effects of Covid-19 on trade are ongoing.

In a new report, the WTO forecasts a 9.2% decline in the volume of world merchandise trade this year, followed by a 7.2% rise in 2021.

This is significantly better than the WTO’s estimate at the start of the pandemic when it forecasted a drop in global merchandise trade of between 13% and 32%.

However, the international body urges caution on its latest forecast as it is “subject to an unusually high degree of uncertainty since they [WTO economists] depend on the evolution of the pandemic and government responses to it”.

The report cites strong trade performance in June and July when lockdowns eased around the world and economic activity increased as the reason for the change in the forecast.

“Trade growth in Covid-19 related products was particularly strong in these months, showing trade’s ability to help governments obtain needed supplies,” it says.

But the report warns that the pace of this expansion could slow sharply once demand is met and business inventories have been replenished. It says that more negative outcomes are possible if there is a resurgence of Covid-19 in the last quarter of the year.

“Whether the recovery can be sustained over the medium term will depend on the strength of investment and employment. Both could be undermined if confidence is dented by new outbreaks of Covid-19, which might force governments to impose additional lockdowns. As a result, risks to the forecast are firmly on the downside,” states the WTO.

In much of Europe infection numbers are rising, with new restrictions being imposed in many countries, including France, Spain and the UK. Meanwhile, cases are largely decreasing in North America and many South American countries, as well as across Africa. However, given the nature of the virus and some countries’ lack of testing, the total number of cases publicly recorded will not reflect the actual number of those infected.

While the situation may be looking more positive for trade this year, the forecast for next year is less optimistic. At just over 7% growth, it is much gloomier than the previous April estimate of 21.3% growth, meaning that trade volumes for 2021 will remain far below pre-crisis levels.

Elsewhere, global GDP dropped more than was expected in H1 2020, causing the WTO to downgrade its forecast for the year. For 2020, global GDP is now set to decrease by 4.8% compared to the -2.5% outlined in the earlier forecast. Next year, GDP growth is expected to increase by 4.9%, however, the body cautions that this is “highly dependent on policy measures and on the severity of the disease”.


Covid-19 has “devastated” parts of trade

The research also finds that the pandemic has “devastated” trade in certain areas, while encouraged trade in others.

Trade in agricultural products fell by 5% in Q2 compared to Q1, but remained resilient with food produced and shipped even under the strictest lockdown conditions. Meanwhile, trade in fuels and mining products fell by 38% as prices collapsed and demand slumped. The drop in manufactured goods trade of 19% in Q2 is comparable to the decline in merchandise trade overall.

“Most manufactured goods bottomed out in April before starting to recover in May and June, but the recovery was partial and incomplete,” reads the report.

Overall, global merchandise trade recorded its steepest ever monthly decline in the second quarter, falling by 14.3%, with the impact wildly different across regions. The biggest monthly drops in Q2 were recorded in Europe and North America, with exports falling by 24.5% and 21.8%. Meanwhile, exports from Asia were much less impacted during the same period, dropping by 6.1%. At the same time, imports were down by 14.5% in North America, 19.3% in Europe, and only 7.1% in Asia.

It is clear that some regions – such as Asia – are faring better than others. As reported by GTR last month, traditional trade transactions are bouncing back in Asia, particularly in Thailand, Vietnam and Indonesia, according to HSBC data. Supply chain finance volumes were also up 50% year-on-year in August for the bank.

Next year, all regions are expected to see big increases in export and import volumes. However, some of these increases are off of a significantly lower base, meaning substantial increases would be expected.

“Imports into Asia and South America are both expected to grow by 6.2% and 6.5% respectively next year, but Asia’s rise would follow on a modest 4.4% decline this year while South America’s would be on top of a steep 13.5% plunge in 2020. In this case Asia’s imports would have substantially recovered while South America’s trade would still be deeply depressed,” reads the report.