Large changes in the world demand structure

This crisis adds to the collapse of aggregate demand the change in its structure


Covid-19 Great Lockdown Global demand Global economic trends

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Inversion of interest in Handbags and Pet Food

In terms of international trade, the current crisis seems to have a depth similar to that of the Great Recession of 2008-2009 and a more accentuated V-shape. However, several factors suggest that in terms of the overall economic impact it may be significantly worse and only extraordinary monetary and budgetary policies will mitigate its negative impacts on households and businesses. This is valid for both developed countries and emerging economies.
The reasons for this potential greater impact are to be found in the profound changes induced by this crisis in consumer preferences. A measure that allows an initial assessment of the magnitude of these changes is shown in the figure below, which presents the monthly dollar demand for Bags and Pet Food.

World demand of Handbags and Tet food
Source: ExportPlanning -Quarterly International Trade Datamart

The restrictions imposed by the lockdown, both in terms of retail closure and limiting social interactions, have led to a drastic reduction in consumer interest in handbags. Conversely, the growing focus on pets has supported Pet Food purchases. In terms of world trade, handbag trade fell below the level of Pet Food trade in April, highlighting how, in the most acute phase of the lockdown, there was a change in consumer preferences. In May, there was a slight recovery in world demand for handbags, which was very marginal, however, considering the difference in world demand for the two goods before the pandemic.

A new structure of demand for goods

Using world trade flows at the 6-digit Harminzed System code level, StudiaBo carried out an initial clustering of the several products, based on the year-on-year rate of change in world demand in the second quarter of 2020. The graph below shows the main results.

variazioni domanda mondiale per settore
Source: ExportPlanning -Quarterly International Trade Datamart

The analysis of the graph clearly shows the large dispersion of the y-o-y rates of change of world trade flows. The sectors that are significantly more affected are those of the transport sectors: Automotive, Aircraft and Trains. Strong reductions have been felt by world trade in goods of the Fashion System, leisure and publishing products.
On the other hand, Fast Moving Consumer, Health and Agri-food goods, with the exclusion of those distributed through the Horeca channel, recorded limited decreases. Pet Food is characterized by being the only product with positive rate of change.

It is reasonable to suppose that these large differences in world trade dynamics mainly reflect the effects of shock in global demand. This is relevant not only for intensity but also for different impacts on the various products. Equally differentiated are the changes in demand for services, with the contact-intensive services sectors like hospitality, travel, and tourism being much more penalised than others. It is likely that these changes in the structure of demand will tend to decrease as the current health and economic crisis tends to be absorbed. However, it is difficult to imagine that the current differences can be completely absorbed, imposing non-marginal adjustments on the supply side as well. This supply-side adjustment is an additional challenge for the production systems of different countries.

In this context, the dynamics of import flows at product level could become a particularly valuable indicator for mapping the new structure of demand that will develop in the various countries of the world.