Global trade recovery from coronavirus shock may have ‘peaked’, as WTO says outlook ‘overshadowed by downside risks’
- The World Trade Organization’s goods trade barometer hit 110.4 in its latest reading, the highest point since the quarterly indicator was first introduced in 2016
- But the trade body says momentum may be peaking and the outlook for world trade continues to be overshadowed by downside risks, including Covid-19
A strong recovery in global merchandise trade from the shock of the coronavirus pandemic in 2020 may have peaked and its impending deceleration could be worsened by new virus outbreaks across the world, the World Trade Organization (WTO) said.
The WTO’s goods trade barometer hit 110.4 in its latest reading, the highest figure since the quarterly indicator was first released in 2016, and up more than 20 points compared to the same time last year.
The latest reading contrasts sharply to the index published in May last year, which plunged to a record low of 87.6. Even so, the global trade body said on Wednesday the “index has started to rise at a decreasing rate, which could presage a peaking of upwards momentum in trade”.
The barometer – which is based on key economic indicators such as global export orders, the trade in electronic components and agricultural raw materials – is designed to signal current and near-term developments in world merchandise trade.
In the latest reading, indicators such as air freight, container shipping and raw materials were rising, but the forward-looking new export orders index “has slowed more definitively”, the WTO said.
“The rise in the barometer reflects both the strength of current trade expansion and the depth of the pandemic-induced shock in 2020,” the WTO said.
“The outlook for world trade continues to be overshadowed by downside risks, including regional disparities, continued weakness in services trade, and lagging vaccination timetables, particularly in poor countries.
“Covid-19 continues to pose the greatest threat to the outlook for trade, as new waves of infection could easily undermine the recovery.”
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Shutdowns in Asian manufacturing hubs will be at the heart of a trade slowdown in the second half of the year, economists said.
ANZ Research’s senior economist Bansi Madhavani said this week supply chain bottlenecks would dampen “the usually strong seasonal boost to Asia’s tech exports”.
The August-December period is the traditional peak demand season for Asia’s tech exports, Madhavani said in a note, but this year the deteriorating pandemic situation across Southeast Asia has slowed factory production.
In particular, chip maker Infineon had to shut its Malaysian factory in early August, Samsung Electronics suspended work at its factories in Vietnam, while Toyota Motor suspended production at three plants in Thailand.
Shahana Mukherjee, an economist at Moody’s Analytics, said on Thursday that the economic costs of Delta outbreaks were “most prominent in the Asia-Pacific region”.
“Previously well-guarded countries such as China and Australia are also in the fray with millions placed under new lockdowns,” Mukherjee said.
While the upshot was an expedited pace of vaccinations across most Asian economies, the “balance of risks was tilting to the downside for most of Asia”, she added.
“Not only will the prolonged restrictions disrupt the nascent revival in domestic demand, but they are increasingly likely to moderate the gains from trade, to the extent that they exacerbate regional supply disruptions, forcing manufacturers to absorb rising production costs to mitigate the hit from falling demand,” she said.
Headwinds are also predicted for US trade in the second half of the year, with potential threats from Delta outbreaks lurking.
The “blistering first half pace” of American goods imports will moderate after the country’s big splurge on products ranging from laptops and webcams to trainers, with trade in services likely to lift instead, Oxford Economics’ US economist Mahir Rasheed said.
“Despite our expectation that trade will continue to normalise, risks to the outlook include Covid-impaired supply chains, potential consumer caution as the Delta variant surges, and still-elevated tensions between the US and China.”