GUIDE TO UNDERSTANDING THE DOWNTURN IN GLOBAL TRADE DURING THE COVID-19 PANDEMIC
The impact of the Covid-19 pandemic on global trade is just beginning to show up in most trade data.
To understand the full scenario, the best is to consider that the World Trade Organization (WTO) projected a drop in both import and export behavior in all regions of the world until the end of this year 2020.
“The numbers are ugly, there is no denying it. The decisions taken today will determine the future shape of the global recovery and growth prospects. Trade will be an important component in this regard, along with fiscal and monetary policy,” said Roberto Azevêdo, WTO Director-General, during the public presentation of the global trade scenario.
For the WTO, this pandemic will mean a collapse of global trade in goods that can move in a range from 13% to 32%. A figure only comparable to other global economic recessions such as the one that occurred in the world during 2008 and 2009 and the so-called “Great Depression” of the 1930s.
The magnitude of the impact of Covid-19 depends, on the one hand, on the ability of health authorities to contain the outbreak of disease by the new coronavirus. This will determine the length of time that household confinement, temporary closures of retail outlets, and other services such as restaurants, hotels, and international tourist flights will be extended.
While a second key factor is the collaboration that countries can weave to keep the supply chains of most industries in the United States and Canada, in Europe, in Asia, and of course, in Latin America, articulated.
There is no doubt that companies dedicated to international trade today need to take into account this global projection of the WTO and that is why at Credit Report we wanted to summarize the most important data.
How was global trade before the pandemic?
When reviewing the WTO data, we must remember that international trade experienced a stagnation during the past year. During the fourth quarter of 2019, global merchandise purchases and sales decreased by 1% compared to the same quarter in 2018.
South America, in fact, was the region that led the decline in exports during the second half of 2019. While imports in this region contracted steadily throughout the months of 2019.
These weaknesses in international trade were largely due to the trade war between the United States and China in 2019.
What will be the region with the biggest drop in exports?
This data is particularly useful for those companies with trading partners in the United States, Canada and Mexico. Because in the WTO projection, North America leads the drop in exports by 17.1%. It is followed by Asia (-13.5%), Central and South America (-12.9%) and finally Europe (-12.2%).
Which region will limit its imports the most?
Perhaps one of the greatest economic impacts of the Covid-19 will be seen in Latin America. This region, which depends on the sale of raw materials such as oil, copper and other minerals, will have to face a lower amount of income and, therefore, a lower capacity to purchase goods abroad.
The WTO, in fact, calculates in its optimistic scenario that Central and South America will see their imports fall by 22.2%. This is the only region with a drop of more than 20 points.
Other regions like North America (-14.5%), Asia (-11.8%), and Europe (-10.3%) will also reduce their purchases abroad, but in smaller proportions from countries like Brazil, Peru, Ecuador, Colombia, Argentina, Chile, Paraguay, or Venezuela.
Which economic sectors could face big falls?
Electronics and the automotive industry are the two economic sectors that could have the most pronounced drops in global trade, according to the two WTO projection scenarios.
This is due to the complexity of the value chains located in different cities of the world, which have to face very different risks and stimuli.
When will the economic rebound begin?
Almost all scenarios coincide in marking the beginning of the economic recovery in 2021 and the most optimistic ones bring it forward to the last quarter of 2020, however, until the isolation measures are completely lifted, this scenario is losing strength.
For the WTO it is key that the different countries of the world collaborate to maintain the free flow of goods and support their companies in these times of uncertainty.
Although there are still many uncertainties about how the Covid-19 will impact global trade, it is best for your company to design a clear strategy to strengthen your relationship with good trading partners, and to help you find them at Credit Report we offer you our local, national and global expertise.