World Trade Organization anticipates global economy to fall between 13 – 32 percent in 2020

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WTO Director-General Roberto Azevêdo

By Caribbean News Global Caribbean News Global fav World Trade Organization anticipates global economy to fall between 13 – 32 percent in 2020

GENEVA, Switzerland — World trade is expected to fall by between 13 – 32 percent in 2020 as the COVID-19 pandemic disrupts normal economic activity and life around the world. The World Trade Organization (WTO) expects a recovery in 2021 is equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness of the policy responses.

“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” WTO director-general Roberto Azevêdo said. “The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”

“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies, and countries. But policymakers must start planning for the aftermath of the pandemic,” he said.

“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”

At the trade forecast press conference director-general Azevedo prefaced:

“We project that trade in 2020 will fall steeply in every region of the world and across all sectors of the economy. In light of the uncertainty about the pandemic’s precise duration and economic impact, forecasts are inevitably based on strong assumptions. As a result, our economists have developed two plausible scenarios instead of their usual single set of numbers. In an optimistic scenario, our economists see the volume of global merchandise trade falling by 13 percent this year compared to 2019.

“If the pandemic is not brought under control, and governments fail to implement and coordinate effective policy responses, the decline could be 32 percent — or more. Again, let me emphasize that all these projections are highly uncertain given the large number of unknown factors at play here. For instance, credit market stresses are affecting the availability of trade finance. Nevertheless, these numbers are ugly there is no way around that. Comparisons with the financial crisis of 2008 and even the Great Depression of the 1930s are inevitable.

“And that is why I want to emphasize that the underlying causes of this economic crisis are very different from the previous ones. Our banks are not undercapitalized. The economic engine was in decent shape. But the pandemic cut the fuel line to the engine. If the fuel line is reconnected properly, a rapid, vigorous rebound is possible,”  said director-general Azevedo.

“Two factors will determine the strength of our recovery. One, how quickly the pandemic is brought under control. And two, the policy choices governments make,” he said:

“A strong rebound is more likely if policymakers show businesses and households reason to believe the pandemic was a temporary, one-time economic shock. To do this, fiscal policy, monetary policy, and trade policy must all pull in the same direction. A turn towards protectionism would introduce new shocks on top of those we are currently enduring. Keeping markets open to international trade and investment would help economies recover more quickly.

“Our economists estimate that, if the pandemic is brought under control relatively soon, and the right policies are in place, trade and output could rebound nearly to their pre-pandemic trajectory as early as 2021 regardless of how steep the initial fall is. But there are other scenarios in which trade volumes post-recovery would remain below the pre-COVID trendline. It is worth remembering that even before the first COVID-19 case was registered, we were not making the most of trade’s potential to drive growth. This new forecast we’re issuing [today] confirms that global merchandise trade was falling at a significant pace in the final quarter of 2019.

“… Governments around the world can and must lay the foundations for a strong and socially inclusive recovery. Trade and international coordination more generally will be important ingredients here. If countries work together, we will see a much faster recovery than if each country goes it alone,” he concluded.

Outlook for trade in 2020 and 2021

The economic shock of the COVID-19 pandemic inevitably invites comparisons to the global financial crisis of 2008-09. These crises are similar in certain respects but very different in others. As in 2008-09, governments have again intervened with monetary and fiscal policy to counter the downturn and provide temporary income support to businesses and households. But restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport, and travel are today directly affected in ways they were not during the financial crisis.

Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing. Under these circumstances, forecasting requires strong assumptions about the progress of the disease and a greater reliance on estimated rather than reported data.

… If the pandemic is brought under control and trade starts to expand again, most regions could record double-digit rebounds in 2021 of around 21 percent in the optimistic scenario and 24 percent in the pessimistic scenario – albeit from a much lower base (Table 1). The extent of uncertainty is very high, and it is well within the realm of possibilities that for both 2020 and 2021 the outcomes could be above or below these outcomes.

The full report is available here.

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