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 volume of merchandise trade shrank by 3% year on year in the first quarter according to WTO statistics. Initial estimates for the second quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year on year drop of around 18.5%. These declines are historically large, but could have been much worse.
The WTO's 20 April annual trade forecast, in light of the large degree of uncertainty around the pandemic’s severity and economic impact, set out two plausible paths: a relatively optimistic scenario in which the volume of world merchandise trade in 2020 would contract by 13%, and a pessimistic scenario in which trade would fall by 32%. 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.
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.
"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 Director General Roberto Azevêdo. "This is genuinely positive news but we cannot afford to be complacent. Policy decisions have been critical in softening the ongoing blow to output and trade, and they will continue to play an important role in determining the pace of economic recovery. For output and trade to rebound strongly in 2021, fiscal, monetary, and trade policies will all need to keep pulling in the same direction."
In light of available trade data for the second quarter, the April forecast’s pessimistic scenario, which assumed even greater health and economic costs than what had transpired, appears less likely, since it implied sharper declines in the first and second quarters.
The COVID 19 pandemic and associated containment efforts intensified in the second half of March. Strict social distancing measures and restrictions on travel and transport were fully in effect in most countries throughout April and May, and 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. Global commercial flights, which carry a substantial amount of international air cargo, were down nearly three quarters ( 74%) between 5 January and 18 April, and have since risen 58% through mid-June. Container port also appears to have staged a partial recovery in June compared to May.
Meanwhile, Indices of new export orders from purchasing managers' indices also started to recover in May after record drops in April. It is useful to keep in mind that these rebounds follow historic or near-historic declines, and will need to be monitored carefully before drawing any definitive conclusions about the recovery.
Looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth. 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. Monetary, fiscal and trade policy choices will play a significant role in determining the pace of recovery.
The outlook for the global economy over the next two years remains highly uncertain. This is reflected in the range of GDP estimates from other international organizations, in some cases relying on multiple scenarios. The World Bank, OECD and IMF have all released forecasts showing significant slowdowns in global trade and GDP; all are broadly consistent with the WTO's forecast for the current year. The World Bank's recent forecast would see global output decline by 5.2% in 2020, falling between the WTO's optimistic and pessimistic range. Other international organizations' GDP forecasts for 2020 are also increasingly negative, even as their trade projections stay roughly in line with the WTO's optimistic scenario. These estimates imply a less negative trade response to declining GDP growth than was observed during the global financial crisis of 2008 09.
The responsiveness of trade to changes in income can be measured by the ratio of the growth of merchandise trade volumes to real GDP growth at market exchange rates, also referred to as the income elasticity of trade. The implied elasticity under the WTO's optimistic forecast for 2020 was 5.3 – in line with that seen during the financial crisis. However, if world GDP instead contracts by the World Bank's estimated 5.2% with a trade decline of 13.4%, the elasticity would only be 2.6. Lower elasticity implies trade holds up better for a given fall in income.
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.
Although purchases of consumer durables such as automobiles fell sharply earlier in the crisis other economic sectors have shown signs of resilience in recent weeks. Sales of consumer electronics have thus far held up better than might have been expected, supporting international trade in these products. For example, according to China's customs statistics, the country's exports of automatic data processing machines, including computers, were up 30% year-on-year in US dollar terms in April. Anecdotal evidence similarly points to strong demand for computer and information technology services, which have facilitated working from home during the crisis.
Automobile sales have also rebounded from recent, though admittedly extreme, lows. For example, sales of cars in China were up 5% year on year in May after falling 79% in February. Car sales in Western Europe and the United States were still down sharply in May compared to last year, but declines were smaller than in the previous month. Increased purchases of consumer durables could be seen as a bellwether signaling renewed consumer confidence as lockdowns are lifted and economies start to revive. They will thus be closely monitored in the coming months.
Source: WTO

POST Covid-19 life has begun with smooth trade across Tanzania-Kenya borders after the East African Community (EAC) partner State leaders- Dr John Magufuli and Uhuru Kenyatta initiated a diplomatic gesture.

In sight, the regional apex body of private sector associations and corporate - East African Business Council (EABC) has confirmed that the initiatives by the two leaders were paying with witnessed resumption of smooth trade between the two countries.

Commenting on the flourishing business, EABC Chief Executive Officer (CEO), Dr Peter Mathuki, said yesterday that agreements struck at a bilateral meeting of ministers from both sides at Namanga, following the presidential talks are commendable for they have reduced the clearance of cargo at the frontiers.

"The sustainable way to combat the Covid-19 as a region was to deploy an EAC coordinated approach and also economic recovery strategy. If partner states of the EAC work in isolation on Covid-19, it will be costly and take us longer to flatten the curve," pointed out Dr Mathuki, who is also a former East Africa Legislative Assembly (EALA) member.

At the meeting, the leaders resolved that truck crews first be tested using World Health Organization (WHO) standards in their countries of origin and issued with a 14-day Covid-19 free certificate that one would show during one's journey into another state.

Dr Mathuki also lauded the EAC partners for the increased intra-trade in the bloc, where member states have taken to sourcing final products and raw materials in wake of the disease that was disrupting global business supply chain.

"The EABC appreciates President John Magufuli of Tanzania and President Uhuru Kenyatta of Kenya for reiterating their commitment to the EAC regional integration agenda," said the CEO.

It was President Uhuru, who phoned his Tanzanian counterpart for amicable talk as trade tiff between the two neighbors escalated over Covid-19 testing at the borders.

In the course, the leaders agreed and directed their officials to meet at Namanga on May 22, where they resolved to facilitate a seamless cross-border movement of goods and people to end the stand-off that had led to sanctions imposed on both sides' merchandises.

However, the ministers agreed that each country should create conducive places where the truck drivers could stop for a rest and that such places be equipped with necessary amenities.

They also agreed that the two countries undertake random Covid-19 screening at the designated resting places, said the communique, adding that the testing be done in a transparent manner.

The parties equally resolved that in case of a truck crew tested positive of the disease, the owner of the truck would be allowed to replace the team that would also be screened and their journey allowed to proceed.

At the same time, they reached a consensus to release to the public data on the status of Covid-19 without mentioning the nationality of the infected person.

Tanzania was represented by Minister for Works, Transport and Communication, Engineer Isack Kamwelwe, while Kenya was represented by Cabinet Secretary in the Ministry of Transport, Infrastructure, Housing, Urban Development and Public Works, Mr James Macharia.

Dr Mathuki said that the Namanga one-stop border post remains a strategic entry point for East and Central Africa and termed the diplomatic intervention a positive gesture.

Through its 'EAC Administrative Guidelines to Facilitate Movement of Goods and Services During the Covid-19 Pandemic', the EAC Secretariat urged EAC partner states to treat truck drivers and crew, who test positive for Covid-19 in the host partner state, rather than deport them to the country of origin as that would result in further spread of the disease.

The Secretariat called on partner states to enforce mandatory screening or testing of truck drivers and their crew at border posts, and as well undertake mobile monitoring during transit at selected inland points.

Source: allafrica.com