Economy

WTO Revises Trade Outlook Up, GDP Down

October 8, 2020

The World Trade Organization has adjusted its outlook on world trade volume to a more optimistic view. In its latest report, the WTO forecast global trade volume to fall 9.2 percent in 2020 instead of 12.9 percent as predicted in the April trade forecast. Trade volume will rebound in 2021 to 7.2 percent, but remain well below pre-Covid levels.

“Strong trade performance in June and July have brought some signs of optimism for overall trade growth in 2020,” said the WTO report. “Trade growth in COVID-19-related products was particularly strong in these months, showing trade’s ability to help governments obtain needed supplies. Conversely, the forecast for next year is more pessimistic than the previous estimate of 21.3 percent growth, leaving merchandise trade well below its pre-pandemic trend in 2021.”

Trade dropped 14.3 percent in the second quarter for the largest decline in world merchandise trade on record, said the WTO, but is expected to begin a rebound in the third quarter.

Global GDP was downgraded to -4.8 percent, compared to -2.5 percent forecast in April. GDP growth in 2021 will rebound to 4.9 percent, but is dependent on policy measures and the duration of the pandemic.

The magnitude of trade decline is similar to that seen in the global financial crisis of 2008-09, but with several differences.

“The contraction in GDP has been much stronger in the current recession while the fall in trade has been more moderate,” said the WTO. “As a result, the volume of world merchandise trade is only expected to decline around twice as much as world GDP at market exchange rates, rather than six times as much during the 2009 collapse.”

Global merchandise trade fell 14.3 percent from the first to second quarter. Exports declined 26.4 percent in Europe and 21.8 percent in North America compared to 6.1 percent in Asia. Imports also were affected more severely, dropping 14.5 percent in North America and 19.3 percent in Europe, but just 7.1 percent in Asia, said the WTO.

A sustained recovery will depend on investment and employment, which could be undermined by further outbreaks of COVID-19 and new lockdowns, said the organization. A vaccine or effective medical treatment would lessen the impact. Another risk is “ballooning public debt that could also weigh on trade and GDP over the longer term.”

“One of the greatest risks for the global economy in the aftermath of the pandemic would be a descent into protectionism. International cooperation is essential as we move forward, and the WTO is the ideal forum to resolve any outstanding trade issues stemming from the crisis,” said Deputy Director-General Yi Xiaozhun.