A container ship moves into New York Harbour on April 2. The WTO trade forecast says the US and the rest of North America will be the biggest importers of goods this year while China and other Asian economies will lead the way in supplying them. Photo: Getty Images/AFP
Opinion
Inside Out
by David Dodwell
Inside Out
by David Dodwell
Coronavirus recovery: cautious optimism is due despite vaccine roll-out issues
Celebrations over the latest WTO trade projections are muted, but at gloomy times like this we need to draw comfort wherever we can
We should be thankful for small mercies given the apocalyptic predictions for the world economy we were hearing a year ago at this time
For so many business leaders across the world, surveying the economic wreckage wrought by a year of pandemic lockdowns, prospects might still feel as bleak as at any point in their business lifetimes. The roll-out of vaccine programmes might in theory be the source of cheer, but I have yet to hear many champagne corks popping.
But if you are Ngozi Okonjo-Iweala, the newly minted director general of the World Trade Organization (WTO), this has been a week of celebration. The WTO’s global trade forecast released on Thursday points to light at the end of the tunnel. “The balance of risks to the forecast is considered to be on the downside,” she said, “but upside potential exists if countries make wise policy choices.”
From where I sit, that is a very big if, but at gloomy times like this we need to draw comfort wherever we can. After trade contraction of around 5.3 per cent in volume terms in 2020, the WTO is pointing to an 8 per cent increase this year and 4 per cent in 2022.
Okonjo-Iweala said “global merchandise trade is relatively robust” but added, “the word relatively is important”. She reminds us that even if the WTO’s recovery forecasts are accurate, “this would still leave trade below its pre-pandemic trend”.
02:03
Ngozi Okonjo-Iweala becomes first African, first woman director general of WTO
Ngozi Okonjo-Iweala becomes first African, first woman director general of WTO
It is also important to recall the dark place WTO economists occupied at this time last year. The headline of their Trade Statistics and Outlook report on April 8, 2020 said it all: “Trade set to plunge as Covid-19 pandemic upends global economy”.
The report forecast a global trade contraction of between 13 per cent and 32 per cent, with nearly all regions suffering double-digit declines. Roberto Azevedo, then-director general of the WTO, did not mince words: “These numbers are ugly.”
“Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing,” Azevedo said.
The extreme pessimism of the forecasts made at this time last year can perhaps be explained by recognising that the second quarter of 2020 marked the nadir of the pandemic recession. We see from data released this week that total merchandise trade in the second quarter was 21 per cent below the second quarter of 2019, with trade in manufactures down 18 per cent. Services trade looked even worse – down 63 per cent from 2019 – with commercial services down 28 per cent in the second quarter, transport services down 29 per cent and travel-related services down 82 per cent.
Few at the WTO at this time last year would have dared to predict so swift a recovery. We have our central banks to thank for releasing billions of dollars of virtually-free debt to help companies keep paying their staff while the global economy remained frozen. We have to thank unprecedented creativity in enabling people to work from home.
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The WTO is basing much of its optimism on a speedy vaccine roll-out. WTO economists predict a 2.5 per cent upside if vaccines distribution is accelerated but a 2 per cent downside if vaccine supply shortages continue.
“A rapid, global and equitable vaccine roll-out is the best stimulus plan we have,” Okonjo-Iweala said. “Depending on how quickly we can bring the pandemic to an end, trade could either see a major resurgence over the next two years, or it could experience weaker, more prolonged recovery.”
The WTO data suggests Asia remains the best place to be as we emerge from the pandemic recession, even though it might not feel that way for most of the region’s businesses. While global trade contracted by 5.3 per cent last year – and an even tougher 8.5 per cent in North America – Asia managed a 0.3 per cent increase in trade volume. The WTO says Asian growth this year will be 8.4 per cent, stronger than the global recovery of 8 per cent and 7.7 per cent in North America.
US President Joe Biden’s US$1.9 trillion stimulus plan, which will boost household incomes and support domestic spending, is likely to be a dominant driver of trade demand, with China and the rest of Asia the main export beneficiaries – not only providing “stuff” like toys, games, sports equipment and garments but also a large share of the personal protective equipment and medical supplies required in the pandemic. The fact the pandemic has had limited impact across most of Asia, with less dislocation because of lockdowns, has also enabled the economies in Asia to continue importing and meet a lion’s share of export demand.
02:23
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While this is clearly helpful for Asia’s recovery, it is unlikely to be politically helpful in terms of China’s still-dreadful economic relationship with the US. The Trump-era phase 1 trade deal, which Biden is sticking with for now, was intended to boost China’s imports from the United States and reduce the bilateral trade deficit. That trade deficit is likely to grow larger in 2021 – perhaps significantly so.
For Hong Kong, little of the WTO’s positivity is likely to be felt. As a services economy, we will see only tiny gains from the recovery in manufactures trade. The recovery in services trade that Hong Kong so desperately needs must await a recovery in travel and tourism that can only happen when a significant share of the world population has been vaccinated. Let’s predict 2022 at the earliest.
So let us thank Ikonjo-Iweala for the WTO’s cautiously upbeat forecasts for global trade as we begin our recovery from the Covid-19 pandemic. It is perhaps good to be reminded from last year’s dark forecasts how much worse they thought the pandemic recession would be. Let us be thankful for small mercies.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view
