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COVID-19 pandemic led to the most severe contraction of
global trade on record
The changes in trade are consistent with the time path
of the pandemic and efforts of individual states to contain
it
In the analyzed group of 88 states responsible for the
vast majority of global trade the value of exports went down by
approximately 10% in the period January-April 2020
year-on-year
The severity of the crises deepened in time and
deteriorated significantly in March and April 2020, May 2020 will
likely prove to be the worst month on record (and Q2 2020 in
general for global trade relations)
The impact of the crises is highly asymmetric in
sectoral dimension with several sectors gaining (pharmaceuticals
and certain foodstuffs) while exports of certain groups of key
manufacturing commodities collapsing (e.g. transportation equipment
and in particular automotive, mineral fuels, machines, electrical
equipment, certain luxury goods)
The time path of the crises differs between sectors -
some show a gradual recovery, in some, the situation deteriorates
in time (for instance clocks and watches, vehicles)
The depth of the trade collapse in Q1 2020
It is difficult to estimate the severity of the situation
without any access to a reliable and up-to-date data source.
Unfortunately, trade data is reported by individual states with a
varied lag and with a different frequency (some report the data
monthly, some only on an annual basis).
To illustrate the impact of the ongoing pandemic on global trade
and the course of changes we have compiled the data for 88
countries that have already reported full data for the first four
months of 2020 that are present in IHS Markit Global Trade Atlas.
The reporters included in the present analysis account for the vast
majority of global exports.
The value of global exports in the first four months of 2020
reported by the analyzed states amounted to five billion US
dollars. It represents a 10% decrease in comparison to the
preceding year.
In January 2020 exports of 42 out of 88 analyzed reporters
increased year-on-year. In 21 cases it went down by less than 5%.
In the next ten states, it changed in a range from -5% to -10%. In
15 cases it went down by more than 10%. These include China
mainland, Macau, Hong Kong SAR, Vietnam and Brazil.
41 out of 88 analyzed countries reported a year-on-year increase
in exports in February 2020. This included China mainland (please
note that China reported data jointly for January and February
which was equally split by the IHS Markit Global Trade Atlas
team). Overall exports increased by 0.2% globally year-on-year. In
26 cases the value of exports went down by less than 5%. In the
next ten states, it changed in a range from -5% to -10%. In 11
cases it went down by more than 10%. These included Luxemburg,
Russia, Finland, Ireland, Australia, and Israel. The situation in
China was stabilizing and it seemed that the pandemic is under some
control before it spread from South-West Asia first to Europe and
other continents from March onwards (North America, South America,
Africa, and so on).
In March 2020, the situation started to deteriorate. Overall
exports went down by 8.8% year-on-year. Only 16 countries out of 88
recorded an increase in the value of exports. In 17 states the
value of exports went down by less than 5%. In the next 15 states,
it changed in a range from -5% to -10%. In 40 states it went down
by more than 10% (including 14 with a decrease higher than by 20%).
The list included the most affected European states for the first
time: Italy, Spain, France, and the UK as well as other top
economies: the US, Japan, and once again China mainland.
Unfortunately, the situation deteriorated further in Q2 2020.
The data for April shows a decrease in the value of exports
year-on-year in 81 out of 88 analyzed states. Overall decrease
reached -23.3%. Only seven reported an increase. These include
Cyprus, Hong Kong SAR, Panama, Thailand, China mainland, Ethiopia,
and Ghana. In only two other states the value of exports went down
by less than 5% year-on-year. In the next seven states, it changed
in a range from -5% to -10%. In 71 states it went down by more than
10% (including 52 states with a decrease higher than by 20% and 20
states with the decrease by 40% and more). It is clear that April
2020 was the worst month so far and that the situation deteriorated
globally on unprecedented scale and depth.
Taking the whole period January-April 2020 into account the
value of exports increased in only 14 out of 88 analyzed states,
which considering the situation, is exceptional. These include
Panama, Pakistan, Brunei Darussalam, Ethiopia, and Kosovo. From the
main advanced states, Ireland and Switzerland proved to be rather
resilient. In 74 countries the value of exports decreased including
all the top economies of the world. Overall exports collapsed by -
9.9% year on year. In 43 countries the decrease exceeded 10%. The
worst affected states (with the decrease by 20% or more) include
Luxembourg, Mauritius, Sri Lanka, Macedonia, Norway, Israel,
Albania, Colombia, Iceland, Russia & Belize. The collapses has
a global dimension affecting both advanced, emerging, and
developing states at different levels of economic prosperity.
The impact on particular economies seems to depend on
the severity of the pandemic in the individual countries and their
top economic partners in particular in their specific region of
location as well as on the particular composition or product
structure of their economies and their embeddedness in the
particular global value chains.
It seems that the full scale of the impact of the pandemic on
global trade will be fully known only once the data becomes fully
available for the second quarter of 2020. The quick analysis of IHS
Markit PMI new export orders readouts for the manufacturing sector
shows that the worst month on record was supposedly May 2020. We
will provide the results as soon as they become available (the
available results for the top ten economies seem to prove it with
an exception for Brazil where the situation deteriorated further in
June and July but affected mostly imports).
The sectoral asymmetry of the impact of the
pandemic
From the very beginning, it was clear that the pandemic is
likely to affect different sectors of the global economy to a
varied extent and could positively boost exports of certain
commodity groups due to increased demand. In order to identify this
asymmetric impact, we have compiled the data using the HS2
classification of products. It is clear that the impact of the
pandemic is highly asymmetric.
The value of exports of 22 commodity groups increased in the
analyzed period year-on-year. This applies in particular to made-up
textile articles, needlecraft sets, and worn clothing and worn
textile articles (HS63), vegetable plaiting materials and vegetable
products (HS14), pharmaceutical products (HS30), animal or
vegetable fats and oils and their cleavage products (HS15), meat
and edible meat offal (HS2) oil seeds and oleaginous fruits (HS12),
edible fruit and nuts (HS8) and cereals (HS2). Apart from
pharmaceuticals, which could be related to the response to the
pandemic, these are basic food-related commodities.
On the other hand, global exports of 79 commodity groups
decreased (in 59 cases by more than 10% and in 19 cases by more
than 20%. The most adversely affected commodity groups include fur
skins and artificial fur (HS43), arms and ammunition (HS93), works
of art, collectors' pieces and antiques (HS97), wool, and fine or
coarse animal hair (HS51). We also have representatives of all
transportation equipment means including aircraft (HS88 - 24%),
vehicles (HS87 - 23.5%), ships, boats and floating structures (HS89
- 22.6%) as well as railway or tramway locomotives, rolling stock
(HS86 - 20.1%) in line with a significant decrease in demand for
transport volumes. The list includes as well certain raw materials
such as zinc (HS79) and tin (HS80), other types of skins and
leather (HS41) and articles of leather (HS42), special woven
fabrics (HS58) and silk (HS50) as well as clocks and watches (HS91)
which could be indicative of lower demand for luxury goods in
general and could reflect increased uncertainty of global
consumers.
In value terms, the increase was most significant in the case of
pharmaceuticals (by USD 23.9 billion) and the decreases exceeded 20
billion USD in the case of iron and steel (HS72, USD -20 billion),
aircraft (HS88, USD -25.1 billion), electrical machinery and
equipment (HS 85, USD -37.9 billion), nuclear reactors, boilers,
machinery and mechanical appliances (HS 84, USD -77.7 billion),
mineral fuels, mineral oils, and products of their distillation;
(HS27, USD -88.2 billion) and vehicles (HS87, USD -111.9 billion).
The list thus includes the most prominent manufacturing sectors
with the most complex global value chains such as aerospace,
automotive or machine industries and petrochemical industry key to
the global economy. In general, the manufacturing sectors with the
most elaborate value chains and the most defragment production
proved to be the most prone to the pandemic The second group of
most impacted commodities is the one dependent on the size of the
global demand concerning the contraction in certain services
sectors such as tourism or transportation and logistics. This is in
line with general expectations though.
The time path of the crises differs between sectors - some show
a gradual recovery, in some, the situation deteriorates in time
(for instance clocks and watches, vehicles).
The background
The outbreak of COVID-19 proves to be the largest black-swan
event in a century with a tremendous impact on the global economy.
The nature of the black swan by definition makes them unpredictable
and very harmful. Unless the situation improves significantly in
the second part of the year, we are going to deal with the largest
contraction of global trade since the Second World War and far
greater than the effects of the global financial crisis in 2008-09
or other similar outbreaks (SARS, MERS, Ebola, etc.).
The reaction in global trade relations is consistent
with the time path of the pandemic and steps taken by individual
countries (or groups of countries) in controlling or
mitigating it. Lockdowns and production stoppages adversely
affected elaborated global value chains temporarily halting the
production of many semi-finished and finished commodities.
The long-term impacts of the crisis could be
severe, with partial adjustments already taking place in
terms of modifications in the global location of production and
thus in trade flows due to changes in perceived risks by the
business community. Uncertainty levels at the same time skyrocketed
which was also fueled by the quickly deteriorating situation in the
labor markets affecting negatively consumer confidence and
impacting global demand. These unprecedented circumstances required
fast reactions from the states.
The unparalleled actions taken by governments have partially
tempered the severity of the contraction, however, could not have
fully mitigated it. Unfortunately, the pandemic is on-going and is
likely to continue unless a successful vaccine is developed and
implemented globally. The most recent Situation Report by the WHO
(from 13 Aug 2020) states 20,439,814 cases globally since the
beginning of January and 276,398 new infections. The impact of
COVID-19 on global trade will depend on the duration, severity, and
the spatial distribution of the pandemic. Unfortunately, the threat
of the second wave of the pandemic is still increasing and it could
have drastic consequences for the global economy postponing the
expected recovery to next year (please refer to the most recent
real GDP growth forecasts by IHS Markit).
It is evident, that the first country affected, China mainland
is already recovering. However, globally, we are in a deep
recession, with the key advanced economies such as the US
particularly affected.
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