2020-Q1: World Trade in the Covid-19 era
Only historical data will allow to overcome the high uncertainty about international trade dynamics in 2020
Published by Luigi Bidoia. .Covid-19 Conjuncture Forecast Global economic trends
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Waiting for the April 2020 world trade figures, which will allow to get a more precise picture of the intensity of the current downturn, it might be useful to take a look at how world trade has approached the great collapse of the second quarter. The analysis of international trade dynamics in the last months may provide insights about how much of the current downturn can be attributable to the supply and demand shocks caused by the lockdowns, and how much is linked to a downward cycle in world demand, already started in 2019.
The following graph shows the main world countries, positioned on the basis of two measures: the y-o-y growth rate of imports in volume in Q4-2019 and the y-o-y growth rate in Q1-2020.
A grey line is drawn at y=0 to highlight the countries that in Q1-2020 recorded a positive change in imports (positioned above the line) or a negative change (positioned below the line). The yellow line represents the bisector of the graph, that distinguishes between countries whose imports are accelerating (at the top left of the line) from those that registered a lower growth or a greater decrease in Q1-2020.
2020-Q1: worldwide imports at constant prices
Source: ExportPlanning - Quarterly International Trade Database
The analysis of this map highlights some key elements useful to examine recent world trade dynamics.
- Social distancing measures and activity closures implemented in some Asian countries during the first quarter had relatively limited effects. All Asian countries on the map show an acceleration in imports in Q1-2020 compared to those recorded at the end of 2019, with the exception of China. Also for China, which has implemented a strict lockdown, the fall in imports in quantity is contained at just over 2%. Asia, therefore, despite being the most affected area by the health crisis in the first quarter, has suffered relatively limited effects. The weak trade growth in the first quarter of 2020 is therefore largely a continuation of the slowdown already experienced in 2019.
- North American countries are all positioned along the bisector of the graph, indicating that also for this area the first quarter 2020 should be read mainly as a continuation of the 2019 dynamics. Within this area, the United States is the country with the biggest downturns, reflecting the trade war started by the Trump administration at the end of 2018.
- Europe is the world area that has experienced the greatest deceleration. All European countries, with the exception of a few cases, are experiencing import reductions in Q1-2020 and they are well below the bisector. This points out how the lockdown interventions introduced by several countries during March heavily affected European foreign trade flows.
- Among the European exceptions we can find Ireland, whose position on the map seems to depend more on the collapse of imports in the last quarter of 2019 than on a real recovery in the first months of 2020.
- The most interesting exceptions in the wider European area are Switzerland, Russia and Turkey. For the first two countries, the y-o-y growth rate recorded in the first two quarters of 2020 is mainly due to a statistical effect, given the low import levels in the first quarter of 2019. For Turkey, on the other hand, these figures represent the continuation of a phase of recovery in imports, after the collapse suffered in the aftermath of the devaluation of the lira at the end of 2018.
The analysis of import data at constant prices per country for the first quarter of 2020 shows a greater negative effect of the European lockdown than the Asian one, even though the former only affected the last 15 days of the quarter. This confirms that Asian countries are better prepared to manage epidemics than European ones. Unlike what happened at the beginning of the Great Recession of 2008-2009, in this crisis foreign trade seems to be more resilient. Part of its weakness in early 2020 is also explained by the effects of the trade war started by the Trump administration in late 2018.
The supply and demand shocks will certainly have the greatest effect on world trade in the second quarter of this year. Fears of a very high slump and a very slow recovery during the second half of the year led the World Trade Organisation at the end of May to forecast a trade decline in 2020 between 13% and 32%. A few days later, the European Commission forecast a decrease in EU27 trade between 10-16%. In recent days, UNCTAD (the United Nations Trade and Development Organization) has predicted a trade collapse in 2020 close to 20%.
The high range of estimates reflects the current great uncertainty that only historical data, available in the coming months, will be able to overcome.