When the dangers of the pandemic began its irreversible spread around the world, many economies soon found themselves suddenly contracting at astronomical levels, causing unemployment numbers to skyrocket and consumption to fall to record-low levels. In the meantime, global trade also took a turn for the worse, with the World Trade Organization (WTO) originally forecasting a downfall of anywhere between 13% and 32% by the end of 2020.
Prior to the pandemic, world merchandise trade was increasing steadily before hitting its plateau in 2018. Then in 2019, trade began to slide slightly, but nothing of the sort to create concern among economies. 2020 was the game changer however, as a global recession forced world trade to suddenly succumb to a shock not seen in years. Nevertheless, the swift action of central banks rushing to throw money hot-off-the-printing-press into their collapsing economies and financial markets certainly helped alleviate some of the more serious repercussions of a deep global recession. But as coronavirus infection rates continue to rise exponentially, the trillion dollar stimulus cushion may soon lose its effect.
In light of this, the WTO updated its previous April global trade forecast, and is now calling for a 9.2% decline in world merchandise trade volume in 2020, followed by a weak rebound of 7.2% come next year. However, the WTO’s report did highlight that the updated estimates are subject to a significant degree of uncertainty, of which the severity will depend on the progression rate of the pandemic and the resulting government responses. The optimistic portion of the new forecast is based on trade rebounds in June and July, which were predominantly pushed by pent-up demand.
However, the WTO warns that as the pent-up demand is exhausted and inventories become replenished, the global trade momentum will sharply dissipate once again. In addition, if there is a resurgence of the virus come the fourth quarter, which there likely will be as parts of Europe are once again grappling with record-high infection rates, even more negative outcomes are likely to result.
Information for this briefing was found via the WTO. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
