As already indicated in the forecast update published on June 22, there is a clear possibility that the reactivation of world trade will not be enough for it to regain its pre-pandemic trend.
This would lead to merchandise world trade growth of around 5% next year, instead of the 20% expected in the case of a rapid return to the previous trajectory. The current trade forecast of 7.2% for 2021 seems to be closer to the hypothesis of a “weak recovery” than to that of a “rapid return to trend”.
Although the decline in world trade during the pandemic is similar in magnitude to that recorded in the 2008-2009 global financial crisis, the economic context is very different. The contraction in GDP has been much greater in the current recession, while the decline in trade has been more moderate. Consequently, the volume of world merchandise trade is projected to shrink only about twice as much as world GDP at market exchange rates, rather than six times as it did during the 2009 crash.
These divergent world trade outcomes during the pandemic are largely due to the nature of the pandemic and the policies applied to combat it. Containment measures and travel restrictions have imposed significant supply constraints on national economies, leading to significant reductions in production and employment in sectors that tend to resist business cycle fluctuations, particularly those of services not traded internationally. At the same time, the application of sound monetary and fiscal policies has stimulated revenues, which has made possible a rebound in consumption and imports once containment measures have been relaxed.
Whether the recovery can be sustained in the medium term or not will depend on the strength of investment and employment. This could be undermined if confidence breaks down due to the emergence of new outbreaks of COVID-19, which could force governments to impose new containment measures. Therefore, the risk that the results will be less favorable than expected is very considerable. There is some chance that projections will improve slightly if a vaccine or other effective medical treatments are found, but their impact would be less immediate.
What could influence the recovery of world trade?
A large increase in public debt could also influence longer-term growth in world trade and GDP. While rich countries are not likely to face a sovereign debt crisis as a result of fiscal expansion, rising debt burdens can be extremely burdensome for poorer countries. Deficit spending could also influence trade balances, reducing national savings, and increasing trade deficits in some countries.
Read part 1 here: World trade forecast by the WTO: part 1