Global Trade Recovery Outpacing Forecasts
(23 September 2020 – Global) Global trade volumes are rebounding much faster in 2020 than they did following the 2008 financial crisis according to new research by IHS Markit.
The data shows trade finance growth has remained resilient as supply chains adapt by snapping back against production gaps and border restrictions, buoying the global economy and defying predictions the pandemic could set progress towards globalisation back decades. New export orders are expanding in 14 of 38 economies measured by research firm IHS Markit as of August, compared with a mere four in at the end of Q2 2020.
It has not been all smooth sailing however. When the COVID-19 pandemic hit in earnest at the end of Q1 2020, international merchandise trade suffered its largest year-on-year decline since the Great Depression. Economists warned of rising protectionism and many CFOs declared they were forced to reevaluate expansive international supply chains that were now highly vulnerable to damaging shocks. Although trade remains below pre-pandemic levels volumes promisingly recovered almost half of this year’s record loss by the end of H1 2020, according to calculations by the Kiel Institute for the World Economy.
Freight rates have improved well above pre-coronavirus levels on key trade routes as demand for goods normalizes, in fact hitting a record high in September for standard container spot prices between Shanghai and California. The recovery isn’t being felt evenly everywhere however and trade faces an uncertain six months ahead as ‘second wave’ threats keep corporates on their toes.
Countries where trade is ratcheting back up such as China, South Korea and Germany are witnessing their economies bounce back faster than countries that rely more heavily on services such as Australia and Spain, noting additional variables such as the relative success in containing COVID-19 outbreaks. China is set to be the only major economy to grow in 2020 while South Korea and Germany’s economies are expected by Barclays to slide by 1.5 percent and 5.3 percent respectively this year, much less than countries geared more toward services such as Spain and Italy, which are forecast to contract 10.7 percent and 9.3 percent. The findings suggest trade may play a more significant role in global economic recovery than anticipated if these trends play out further.
“Trade is one sector of the economy that has proven to be more resilient. Even if you can’t go on that vacation, you can buy yourself a new laptop” said S&P Global Asia Pacific CEO Shaun Roache.