Real value of global trade is set to surge by 7.6 percent in annual basis (YoY) in 2021 and 5.2 percent in 2022 according to IHS Markit’ Global Trade Atlas forecasting - Photo by Finance Ministry Office

JAKARTA (TheInsiderStories) – Real value of global trade is set to surge by 7.6 percent in annual basis (YoY) in 2021 and 5.2 percent in 2022 according to IHS Markit’ Global Trade Atlas forecasting. This follows an estimated contraction of 13.5 percent in 2020 to US$16.4 trillion compared to the previous year.

The growth this year is attributed to the forecasted recovery in global GDP in 2021 and a particularly strong growth impulse expected in the second quarter. The predicted compound annual growth rate (CAGR) for the real value of global trade for the period of 2021 – 2030 is 3.5 percent.

In terms of volumes, IHS Markit estimates a contraction of 11.2 percent in the global trade during last year to 12.7 billion metric tones and forecasts a 7.5 percent growth in 2021 then a 4.1 percent increase in 2022. This will allow the global economy and in particular the transport community to regain momentum and to recoup some of the losses from the trade collapse of 2020.

The CAGR for global trade volume stands at 3.2 percent in the period of 2021 – 2030. The estimated contraction in global trade volume in 2020 (-11.2 percent) is higher than the contraction in the global financial crisis (-7.7 percent).

“Economic developments will critically depend on the shape of the pandemic curve and the severity of containment efforts taken globally and by individual states as well as the effectiveness of vaccination programs globally,” said Tomasz Brodzicki, senior economist at IHS Markit.

Although the COVID-19 vaccines have been developed with unprecedented speed, the effects of vaccination programs are unlikely to be felt globally before third quarter (3Q) or 4Q of 2021, as larger parts of the population get immunity. However, many uncertainties still remain and are likely to observe more pronounced adjustments to global value chain/trade patterns (trade diversion effects) the longer the pandemic lasts.

Other important qualitative factors that could affect global trade in 2021 include the side-effects of Brexit, functioning and progress of the Regional Comprehensive Economic Partnership Agreement in participating nations, the new United States administration’ trade agenda taking a more multilateral trade policy approach or elections in in countries like Germany resulting of a shifting in power impacting German and European Union policies.

Earlier, IHS Markit rated, the sharp rebound in global trade volume has been one of the bright spots in an unusually cloudy outlook. It said, after precipitous declines in the spring, many indicators of world merchandise trade rose by record amounts during the summer. A specific example is the Port of Los Angeles, where container imports reached an all-time high in August.

Generally, the analysts predicts, the drop in global real GDP during the current crisis to be nearly three times as large as during the global financial crisis, 4.5 percent versus 1.7 percent, the decline in the exports of goods and services (in real terms) should be almost the same around 10.5 versus 9.6 percent.

This time, the key reason for the relatively less dire performance of trade is the disproportionately large impact of the pandemic on non-traded services compared with manufacturing. In 2020, this effect is evident in the smaller expected drop in industrial production at 6.0 percent versus 2009 at 9.0 percent. Another differentiating factor is the role of finance.

According to Nariman Behravesh and Sara Johnson from IHS Markit, during the financial crisis, trade finance froze up, severely hampering global commerce. The overwhelmingly large liquidity measures enacted by the United States Federal Reserve and other central banks in 2020 have limited the damage during this crisis. Finally, the early and strong rebound in mainland China’ economy has boosted both its imports and exports, helping overall world trade.

They stated, “The fitness of global supply chains has been one very positive surprise during the pandemic. As borders were closed and factories locked down, there were early fears of a pervasive breakdown in supply chains. Fortunately, the network of world production has been flexible enough to adapt, supporting the strong recovery in trade and manufacturing,”

Going forward, they adds, the picture remains murky. The welcome rally in trade could be part of the broader “bounce and fade” pattern of the global recovery. Similarly, the surge in mainland China’ imports and exports could be temporary. They said, China’ current-account surplus is rising, suggesting its recovery is not helping other economies much.

Most troubling of all, rising trade imbalances, along with trade and technology conflicts, could well lead to further actions to limit trade, not just by the US but also by key economies in Europe and Asia. One measure of globalization, the ratio of world merchandise imports to GDP (in nominal terms), rose from around 12 percent in the mid-1980s to nearly 25 percent right before the global financial crisis. It has since stalled in the 20 – 22 percent range.

During the coming decade, IHS Markit expects neither a collapse in globalization nor the type of boom we saw in the 1990s and 2000s. The downside risks are almost entirely related to protectionist policies. The upside risks are from technology (especially digitization) and the potential for closer and broader global trade integration.

Edited by Editorial Staff, Email: theinsiderstories@gmail.com