Strong Trade Rebound; but Momentum may be Short Lived: WTO Trade Barometers

The latest Goods Trade Barometer by WTO states that the decline in the volume of world trade in good in 2020 may be slightly less severe than the WTO’s recent forecast of 9.2 percent. This may be due to strong performance of trade in the fourth quarter. However, prospects for 2021 and beyond are uncertain as new variants of COVID-19 have appeared.

“World merchandise trade volume growth remained strong in the fourth quarter of 2020 after trade rebound in third quarter from a deep COVID-19 induced slump; however the pace of expansin in the fourth quarter is unlikely to be sustained in the first half of 2021 since key leading indicators appear to have already peaked,” reports WTO’s latest Goods Trade Barometer of 18 February 2021.

The merchandise trade improved since it dropped sharply in the first half of last year. The barometer’s current reading is 103.9, which is above the baseline value of 100 for the index. The previous reading of November stood at 100.7.
“All component indices are either above trend or on trend, but some already show signs of deceleration while others could turn down in the near future,” states the report. “Furthermore, the indicator may not fully reflect resurgence of COVID-19 and the appearance of new variants of the disease, which will undoubtedly weigh on goods trade in the first quarter of 2021,” it added.

The most reliable leading indicators for world trade, indices for export orders (103.4) and automotive products (99.8) have peaked recently. But it has already started to lose momentum. In contrast, the container shipping (1.7.3) and air freight (99.4) indices are constantly rising. However, higher-frequency data suggest that container shipping has dipped since the start of the year.

The report mentions that indices for electronic components (105.1) and raw materials (106.9) are firmly above trend, this could be due to temporary stockpiling of inventories. “Taken together, these trends suggests that trade’s upward momentum may be about to peak if it has not already done so,” states the report.

The WTO’s most recent trade forecast of 6 October 2020 predicted a 9.2 percent drop in the volume of world merchandise trade in 2020, but the actual decline may be slightly less severe.

The strong growth in exports from Asia to North America and Europe had revived world merchandise trade in the third quarter of 2020, which was still down 5.6 percent compared to the same period in 2019 after having falling 15.6 percent in the second quarter. The report states that “these declines, while still very large, are less severe than many analysts feared at the start of the pandemic”.

However, the new variants and rising incidents of COVID-19 worldwide is creating a situation of uncertainties. Recovery will depend to a large extent on the effectiveness of vaccination efforts.