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Top 10 economies: Q2 2020 the worst quarter on record in trade with first signs of a sustained but very gradual upturn
07 September 2020Tomasz Brodzicki, Ph.D.
Key points:
Q2 of 2020 was the worst quarter on record for global
trade and this is highly likely to apply to 2020 as a whole; on
average May was the worst month so far among all the top 10
economies, even worse than April 2020
June 2020 brought about an improvement in May 2020: all
top economies apart from China are however still reporting negative
growth rates in exports year-on-year ranging from -4.3% for Brazil
to -26.1% for Japan
In comparison to May the situation improves in all
states apart from Japan, with the largest turn around reported for
Canada, South Korea, United States, UK, Russia, and Brazil; July
2020 data reported for some of the states show a continuation in
upturn
China is thus the only top economy showing clear signs
of recovery in Q2 2020 - Chinese exports were higher by 0.3% in
June and 7.2% higher in July year-on-year
The tendencies observed in export data at the end of Q2
and beginning of Q3 2020 are in line with observations made by the
Maritime & Trade team based on high-frequency shipment data in
recent weeks
Manufacturing PMI new exports orders readouts by IHS
Markit for August 2020 are above of 50.0 points for EU, Russia, and
China, and values close to 50.0 points for India, UK, South Korea,
and Japan; the lowest level has been recorded for Japan; it implies
a further improvement in exports soon unless the double-hit
scenario materializes
The trend in the PMI is clear and consistent within Q2
of 2020 showing a gradual improvement in market confidence from May
onwards and continuing in Q3 which allows for more optimism for the
third quarter of 2020
Developments in Q2 and Q3
The COVID-19 pandemic has triggered a severe economic
recession; the first two quarters of 2020 brought
about a collapse in trade (year-on-year) due to the spread of the
pandemic and resulting lockdowns and production stoppages and
disruption in global value chains
The contraction in the trade that started in China and East
Asia in Q1 and spread globally continued well into Q2 with most
countries reporting massive declines with April/May being the worst
months on record; the situation is slowly improving far from a
recovery though
Most of the top 10 economies have by now reported data for June
or even July 2020 apart from India and the EU
Without any doubt, Q2 of 2020 was the worst quarter on
record for global trade and this is very likely to apply to 2020 as
a whole; on average May was the worst month so far among all the
top 10 economies, even worse than April 2020
The worst affected country is India which reported a massive
drop of 60.5% in the real value of exports in April 2020
year-on-year with some improvement in May
Year-on-year changes in exports in May 2020 were negative for
all reporting states including China (-3.3%), Brazil (-14.5%),
South Korea (-23.8%), Japan (-26.0%), EU external trade (-31.6%)
Russia (-34.8%), UK (-35.0%), India (-35.7%), United States
(-36.3%), and Canada (-40.9%)
June 2020 brought about an improvement on May 2020 for all
reporting states apart from Japan; year-on-year China reported an
increase in exports of 0.3%, all others are reporting negative
growth rates year-on-year ranging from -4.3% for Brazil to -26.1%
for Japan; in comparison to May the situation improves in all
states apart from Japan, with the largest turn around reported for
Canada, South Korea, United States, UK, Russia, and Brazil
July 2020 data reported for some of the states show a
continuation in upturn - with exports growing year-on-year in China
(+7.2%) and lower reported year-on-year decreases in the value of
exports for Brazil (-2.9%), South Korea (-7.1%), and Japan
(-17.9%); out of South East Asian economies Japan seems to be most
adversely affected by COVID-19 - at least at this stage of the
crises
China is thus the only top economy showing clear signs
of recovery in Q2 2020 - Chinese exports were higher by 0.3% in
June and 7.2% higher in July year-on-year
The tendencies observed in export data at the end of Q2
and beginning of Q3 2020 are in line with observations made by the
Maritime & Trade team based on high-frequency shipment data in
recent weeks
Year-on-year changes in imports in June 2020 were negative for
all reporting states apart from China (an increase of 3.3%
year-on-year) and ranged from -4.6% for Russia and -8.8% in the UK
to -16.4% in Canada and -19.8% in Brazil
EU and India have only reported data for May, and they show a
massive drop of -52.4% for India and -27.7% for the EU's external
imports
Among the countries that reported the trade data for July (the
first month of Q3) the year-on-year changes in the value of imports
are negative for all the states and range from -4.2% for China,
-11.6% for South Korea, -21.1% for Japan to -35.2% for Brazil and
interestingly after an improvement reported in June, the situation
worsened in July
The situation in exports looks more positive than in
imports among the top 10;this could imply weak
import demand due to lower consumer confidence and higher overall
uncertainty levels with some clients postponing their purchases or
substituting foreign goods with domestic alternatives; on
the other hand, it could also imply a gradual increase in exports
to markets outside top 10 economies which were to a lesser extent
adversely affected by the COVID-19 pandemic an, in particular,
emerging and developing economies
The negative tendencies observed in imports in July can
undermine prospects for broader recovery weakening prospects for
further improvements in exports in the forthcoming months taking
into account that approximately 3/4 of the global trade is done
within the group of the top 10 economies
Prospects for the forthcoming months
As has been already stressed in prior commentaries the reaction
in trade so-far is consistent with the escalating global COVID-19
pandemic and steps taken by individual countries/territories in
controlling or mitigating it
On 30 August 2020 WHO reported 24,854,140 cases globally and
838,924 deaths so far; the number of new cases reported globally
daily close to 255,000 and close to the peak observed at the
beginning of August; the cumulative number of cases is the largest
for the region of the Americas (53%) followed by Europe (17%) and
South-East Asia (16%) with the largest number of new cases reported
in recent weeks in South America; on a country level, the worst
affected states in gross terms are the US, Brazil, India, Russia,
Peru, Colombia, Mexico, Spain, Argentina, UK, Iran & Saudi
Arabia
The impact on global trade and global economy will depend on
the duration, severity, and the spatial distribution of the
pandemic, with several scenarios still possible, and critically
depends on the development and implementation of a successful
potential vaccine
The threat of the so-called second wave of the pandemic is
increasing with some states having already re-imposed strict
overall or partial (regional) while some states are still unable to
deal efficiently with the first wave
The potential second wave in autumn 2020 could have
drastic consequences for the global economy postponing the expected
recovery to the later month of Q2 or even Q3 of the next
year
Some economist have already pointed 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 the same likelihood as the single-hit
scenario
The recent release of the IHS Markit GTA Forecasting model
of global trade has accommodated the most recent trade data and the
new macro forecasts and it points to a weakened and more gradual
recovery more of U-shape (looking from a yearly perspective) with
better prospects in the long-run than in our May release but not
returning to the pre-COVID trend
Our estimated contraction in global trade value for the
entire year is close to the results reported by the OECD and IMF
and close to the estimated optimistic scenario of the WTO from
April 2020
Themanufacturing PMI new exports
orders readouts (unadjusted) by IHS Markit for August 2020 are
above of 50.0 points for EU, Russia, and China,and
values close to 50.0 points for India, UK, South Korea, and Japan;
the lowest level has been recorded for Japan; it implies a further
improvement in exports unless the double-hit scenario
materializes
The trend in the PMI is clear and consistent within Q2
of 2020 showing a gradual improvement in market confidence from May
onwards and continuing in Q3 which allows for more optimism for the
third quarter of 2020
The most recent real GDP growth forecasts from IHS Markit
Comparative World Overview (published on 21 August 2020)
point to a recession in most of the states throughout 2020
and Q1 of 2021, apart from China (recovery already in Q2 2020) and
India (recovery in Q1 2021 - a delay by half a year in comparison
to the prior release).The worst affected countries
(regions) in Q3 2020 are forecasted to be the UK (-13.1%
year-on-year), EU (-9.1%), Brazil (-8.5%), and Canada (-8.1%);
China at the same time is forecasted to grow year-on-year by
6.0%
Stronger recovery in real GDP growth rates is expected
only later in 2021 with the peak in Q2 2021; the forecast,
unfortunately, depends critically on the ability to deal with the
potential waves of the pandemic and thus uncertainty levels are
still high; this is consistent with the incoming trade data and is
driving our trade forecasts.
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