The World Trade Organization (WTO) published a new report on Wednesday that is truly apocalyptic, and crushes all hopes that a V-shaped recovery would be seen this year (similar to what Morgan Stanley said last week):
“World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world,” the WTO report said.
The Geneva-based body does not see a recovery in global trade until 2021, and even then, the outcome of recovery is mainly dependent “on the duration of the outbreak and the effectiveness of the policy responses.” The economic recovery could be anywhere from 21% and 24%.
“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.”
Shown in the chart below, the WTO has modeled three scenarios of world trade through 2022 against a trendline from 1990-2008 and a trend line from 2011-2018. Notice the giant gap forming verses both trend lines as the global economy is undoubtedly in trouble.
WTO said world trade was already slowing before the virus outbreak, mainly because of the trade war.
“Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth. World merchandise trade registered a slight decline for the year of ‑0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion.”
Chart 2: Ratio of world merchandise trade growth to world GDP growth, 1990‑2020 (% change and ratio)
Chart 3: New export orders from purchasing managers indices, Jan. 2008 – Mar. 2020 (Index, base=50)
Chart 4: World merchandise exports and imports, 2015Q1‑2019Q4 (Index 2015Q1=100 and year‑on‑year % change)
And to confirm WTO’s thoughts on collapsing global trade, the OECD was also out with a report outlining all major economies had plunged into a “sharp slowdown,” or as some like to say: depression.
Seperate from the WTO press release, WTO’s Azevêdo was quoted in a headline on Wednesday that read: “crisis shouldn’t mean reversal of globalization.”
Except for the stock market it does!