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China mainland is the only top economy showing signs of
recovery in Q2 2020 both in exports and imports
Overall, the Q2 of 2020 is the worst quarter in global
trade on record
Year-on-year changes in exports in May 2020 were
negative for all reporting states including China (-3.3%), Brazil
(-14.2%), South Korea (-23.7%), Japan (-26.0%), Russia (-34.8%),
United States (-36.3%), UK (-36.6%), EU external trade (-37.7%) and
Canada (-41.0%)
Several countries have already reported trade data for
June 2020, Brazilian exports went down by 2.7% year-on-year, the
situation is much worse for South Korea (-10.9%) and Japan
(-26.1%), Chinese exports went up year-on-year but only by 0.3%
which is, however, a clear improvement on the preceding months,
taking the whole Q2 2020 Chinese exports are above by 0.1% over the
result
PMI new export orders for manufacturing is above 50.0
points for the US and the EU excluding the UK providing some
optimism for Q3
Key developments in trade in Q2 2020
China mainland is the only top economy showing signs of
recovery in Q2 2020 (with positive changes both in exports and
imports)
Year-on-year changes in exports in May 2020 were negative for
all reporting states including China (-3.3%), Brazil (-14.2%),
South Korea (-23.7%), Japan (-26.0%), Russia (-34.8%), United
States (-36.3%), UK (-36.6%), EU external trade (-37.7%) and Canada
(-41.0%)
May 2020 brought about a deterioration of the situation from
April 2020 for all the states apart from South Korea with the most
adverse shifts in the US, Japan, and the EU as well as China
Year-on-year changes in imports in May 2020, similarly to
exports, are negative for all reporting states and range from
-10.5% in Brazil, -15.7% in Russia and - 16.4% in China to -25.7%
in the US, -32.0% in the EU external imports, -33.9% in the UK, and
a massive -39.2% contraction in the case of Canada; in comparison
to April 2020 the situation deteriorated in all the states apart
from Brazil, Russia, and the UK with Japan being affected the
most
Four out of top ten world economies, have already reported data
for June 2020, Brazilian exports went down by 2.7% year-on-year,
the situation is much worse for South Korea (-10.9%) and Japan
(-26.1%), Chinese export went up year-on-year but only by 0.3%
which is, however, a clear improvement on May results
From quarterly perspective exports of all the top ten countries
decreased year-on-year in Q1 2020 ranging from -1.8% for South
Korea and Canada to -12.8% in India and -13.4% in China, the Q2
results are worse for most of the states that have already reported
the complete data (Japan -23.7%, South Korea -20.3%, Brazil -8.6%)
apart from China (+0.1%) with the level of exports more or less the
same as in the preceding year indicating an ongoing recovery
India has only now reported the trade data for March 2020, as
could have been expected due to lockdowns implemented the exports
collapsed by more than 1/3 (-34.6%) year-on-year - it was the most
adverse effect reported in March by all the top 10 economies
Prospects for the forthcoming months
The reaction in trade so-far is consistent with the escalating
global COVID-19 pandemic and steps taken by individual countries
(or group of countries) in controlling or mitigating it
On 3 August 2020 WHO reported 17,918,582 cases globally and
686,703 deaths so far, the number of new cases reported globally is
now close to 260,000 and is not showing signs of deceleration
The impact on global trade and global economy will depend on
the duration, severity and the spatial distribution of the
pandemic, with several scenarios of recovery still possible, and
critically depends on the development of a successful vaccine
Unfortunately, the threat of the second wave of the pandemic is
increasing with some states already re-imposing strict overall or
partial (regional) lockdowns upon the signs of the second-wave and
some countries are still unable to deal efficiently with the first
wave; the potential second wave in autumn 2020 can have drastic
consequences for the global economy postponing the expected
recovery to next year, some economist are pointing to a potential
change in the shape of the crisis from the V to W pattern with OECD
speaking of additional decline on top of the existing one in the
double-hit scenario, having at this stage the same likelihood as
the single-hit scenario
PMI new export orders is a very good predictor of the changes
in trade flows in the forthcoming months, the manufacturing PMI new
exports orders readouts (unadjusted) by IHS Markit for July 2020
are above of 50.0 points for EU and the United States, and values
close to 50.0 points for China, Russia, and the UK, the lowest
level has been recorded for Japan (40.2 points);
The trend in the PMI is clear and consistent within the Q2 of
2020 showing a gradual improvement in market confidence, which
allows being more optimistic for the third quarter of this year
unless a second wave of the pandemic will adversely affect in the
months to come
The most recent GDP growth forecasts from IHS Markit
Comparative World Overview (published on 15 July 2020) point to a
recession in most of the states throughout 2020 and Q1 of 2021,
apart from China mainland (recovery already in Q2 2020) and India
(recovery in Q3 2020). The worst affected countries (regions) in Q2
2020 are forecasted to be the UK, EU, and the US
The recession is forecasted to last throughout Q1 2021 in most
of the states with a significant upturn in the case of China and
India only (consistently with the forecasts for the remainder of
this year), a stronger recovery in real GDP growth rates is
expected to spread to other economies only later in 2021, the
forecast, unfortunately, depends critically on the ability to deal
with the potential second/third waves of the pandemic, uncertainty
levels are still high
Taking into account the multiplier effect between GDP growth
and trade growth in times of crisis exceeding the value of 3.0 we
can expect the contraction of trade in most of the top economies to
last through 2020 and Q1 2021 and to take more than two-digit
values year-on-year
The background
The COVID-19 pandemic is the worst global health crisis in a
century and potentially without precedent if we take the globalized
nature of the current economy. The pandemic has already triggered a
severe economic recession, the first months of 2020 brought about a
collapse in trade (year-on-year) due to the spread of the pandemic
and resulting lockdowns and disruption in global value chains
The first top economy adversely affected was China followed by
Japan and other East Asian countries and India, the situation
deteriorated in most of the top economies in March or in April in
line with the spreading pandemic
The contraction in trade continues well into Q2 with most
countries reporting massive declines, without any doubt it will be
the worst year on record for global trade and potentially the worst
quarter on record as well
The outbreak of COVID-19 proves to be the largest black-swan in
a century with an extreme impact on the global economy; we are
dealing with the largest contraction of global trade since the
Second World War, far larger than the effects of the global
financial crisis in 2008-09 or any other recent outbreak (e.g.
SARS, Ebola or MERS)
