The latest forecast of global trade: 2022 can only resume growth

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The trade statistics of all countries or regions for which monthly data are reported show that exports from January to May 2020 contracted by 13.5% year-on-year, of which the trade volume in April and May contracted by about 25%.

According to the latest IHS Markit GTA forecasting model, global merchandise trade in 2020 may be $1.6672 billion, a year-on-year decrease of 12.2%.

It is estimated that the contraction of global trade value in 2020 is close to the results reported by OECD and IMF, and it is also close to the optimistic scenario estimated by the World Trade Organization (WTO) in April 2020.

We do not expect the recovery in 2021 to be very strong, and forecast that the actual trade volume in 2021 will increase by 5.6% year-on-year. It is predicted that the compound annual growth rate from 2021 to 2030 will be 3.5%, which is higher than the previous forecast.

It is expected that the intensity of the recovery in 2021/22 can bring the trade growth rate back to the track before the epidemic (2011-2019), but the overall trade volume can only truly resume growth around 2030.

Multinational companies are increasingly paying attention to security issues and incorporating them into decision-making, which may affect their choice of business location and reshape the global value chain and logistics landscape.

We are likely to see the trend of local operations, business relocation or nearshore business, which will transform the global value chain to a more regional value chain.

The short-term and long-term impact of COVID-19 on trade and trade landscape

After a downturn in 2019, 2020 proved to be the most challenging year for the global economy to date. The COVID-19 pandemic destroyed hopes for a strong global economic recovery.

According to statistics from the World Health Organization, by mid-September, the number of confirmed cases of new crowns worldwide reached 30.7 million, and the death toll was close to 1 million. From September 14 to 20, there were nearly 2 million newly confirmed cases of COVID-19, an increase of 6% compared to the previous week. This is the highest number of new cases in a single week since the beginning of the epidemic.

The COVID-19 pandemic is the most serious public health crisis in more than a century. If we consider the global nature of the current economy, it is more likely to be unprecedented. It caused simultaneous shocks on both ends of supply and demand, resulting in a global recession and unprecedented contraction of trade (affecting the export potential and import demand of various countries). So far, this contraction has been far greater than the impact of the 2008-09 global financial crisis (known as the "Great Trade Collapse") or other recent public health crises (such as SARS, Ebola or MERS). The first major economy to be adversely affected by the epidemic was China, followed by other East Asian countries and India, and then as the pandemic spread, global conditions began to deteriorate in March.

The trade contraction continued into the second quarter, and most countries reported a sharp decline. April/May was the worst month on record. There is no doubt that the second quarter of 2020 is the worst quarter in history for global trade performance, and this situation is likely to continue throughout 2020.

The direct blow to trade comes from supply disruptions leading to production disruptions (local/regional blockades/forced production shutdowns), strict controls leading to increased transportation costs, and the pass-through effect of the supply chain further magnifies the direct supply shocks (more affected. Manufacturing sectors in few countries are facing increased difficulty in importing necessary production inputs and increased costs from severely affected countries), and finally due to the reduction of aggregate demand (economic recession) and preventive or wait-and-see attitudes leading to delays in procurement and investment, and further interruptions demand.

The worst-affected countries include those hardest hit by the epidemic itself, as well as those countries and regions that are highly dependent on the import and export trade links (upstream and downstream partners of global value chains) with the hit countries. The highly interconnected global production network and management methods including timely and lean production reduce inventory on the one hand, but also increase the fragility of the global economy when facing shocks.

However, due to the different positions of industrial sectors in the value chain, the impact of the epidemic is asymmetric. Those industries that are highly dependent on adversely affected regional or global hubs (such as China, Italy, Spain or Germany) will be more affected (such as the automotive industry, electronics). There are also certain industries or sectors (such as pharmaceuticals, IT services) that have made positive developments in this epidemic.

The level of global uncertainty has soared, which has had a negative impact on financial markets. Increasing uncertainty and falling demand will reduce corporate investment, and this may have further dire consequences (low accumulation and low growth rate).

Countries and groups of countries have once again taken unprecedented measures to alleviate the crisis, which may be similar to the negative impact on public finances and global debt levels in 2007-08. This increases the possibility of a W-shaped recovery scenario (the V-shaped initially assumed, that is, the possibility of a rapid recession followed by a rapid recovery is already very small).

The pattern of trade collapse reflects the spread of the pandemic and the steps taken by various countries. Obviously, the overall impact will depend heavily on the duration, severity and geographic distribution of the pandemic. The remedy will be the successful administration of the vaccine or global immunization.

Unfortunately, the spread of COVID-19 is similar to the infamous 1918-19 Spanish flu pandemic. This epidemic lasted for two years with three peaks, with the second wave being particularly serious. Current data show the first signs of a second wave in more and more countries. The economic impact now will depend on the actions taken by countries-judging from the overreaction in the spring, unless the situation deteriorates significantly (for example, Israel recently re-imposed a three-week national blockade), they are unlikely to take tough and damage Economic measures.

It is not difficult to understand that the impact of the pandemic cannot be eliminated in the short term-it will have long-term consequences. As the pandemic lasts longer, the adjustments to global value chains and trade patterns (trade diversion effects) become more obvious.

The epidemic has accelerated digital transformation, brought changes to work patterns, and enhanced the role of RPA/AI in many areas. Health and safety issues will be taken more seriously, which is likely to change the decision-making of multinational companies, especially affecting their choice of business locations, thereby reshaping the global value chain and logistics landscape. We are likely to see more onshore, relocation or nearshore development trends, which will transform the global value chain to a more regional value chain. However, the momentum of globalization cannot be reversed.

Global growth forecast

The growth rate of global real trade value is highly correlated with the growth rate of global real GDP. However, at a time of crisis, the reaction of trade is more severe than GDP itself, and the downturn and recovery will be more obvious. Generally speaking, compared with global production or GDP, trade is more volatile by major macroeconomic shocks.

Quarterly data shows that, compared with recent pandemics such as SARS or MERS, the current COVID-19 outbreak caused by the SARS-Cov-2 virus has a more serious impact on the global economy and is more severe than the global financial crisis in 2007-08. The impact is greater.

IHS Markit compares the latest quarterly GDP forecasts of the industry sector and shows that the decline should have bottomed out in the second quarter of 2020, and a strong recovery is currently expected in the second quarter of 2021 (one quarter delayed). Therefore, assuming that we can control the pandemic within a certain range within 2020, we are likely to see a V-shaped recovery pattern. However, if there is a new wave of epidemic pandemic, it will face a more unfavorable situation and make the recovery appear U-shaped or W-shaped.

Forecasts for the top ten economies indicate that China is the only economy that has resumed growth in 2020. India should recover in the first quarter of 2021, followed by other economies. It also needs to be emphasized that compared with previous public health crises, the leading factors of the current crisis come from those developed economies that account for most of the global trade and manufacturing production, so the impact is much greater. Emerging countries that are less involved in the global economy and value chain may be less affected.

What do the trade-PMI new export orders in the third and fourth quarters of 2020 show?

In April and May 2020, the adjusted PMI new export order index collapsed, and the level has fallen below the benchmark value of 50.0 points, indicating that global manufacturing and service trade have shrunk sharply. At that time, the service industry index was 21.8 and 29.9, respectively. Karma is 27.1 and 32.3. The values in both sectors are far below the global level of 2008-09, showing the actual depth of the crisis and the destruction of market confidence. However, the index has gradually recovered since May.

World Commodity Trade in 2020-35

Our forecast released on August 31, 2020 incorporates all newly received data. The results indicate that global merchandise trade may fall to US$16,672 trillion in 2020, a year-on-year decrease of 12.2% (compared to previous forecasts). Improvement; the previous forecast is that the annual export value will be 1,639.6 billion US dollars, a year-on-year decrease of 13.6%). Our estimate of the contraction of global trade value throughout 2020 is close to the results reported by the OECD and IMF, and also close to the optimistic scenario predicted by the World Trade Organization (WTO) in April 2020.

At present, we expect that the recovery in 2021 will not be too strong. In 2021, the actual trade volume will increase by 5.6% year-on-year, and by 2022 it will increase by 7.9%. However, it is predicted that the compound annual growth rate (CAGR) for the period 2021-2030 will be relatively high, reaching 3.5% (previously predicted 2.8%). This is a more optimistic forecast, and on the premise that there is no serious second or third wave of pandemics, the recovery tends to be U-shaped rather than V-shaped.

Our forecast is close to the "optimistic" scenario in the development of world commodity trade announced by the World Trade Organization. The expected recovery (2021/2022) may be strong enough to bring trade back to the pre-pandemic track (2011-2019 growth rate), but only around 2030 will total trade return to this level.

The sharp decline in trade in real terms in 2020 has put the global economy at the level of 2012. The decline in trade in the second quarter of 2020 was a record.

Compared with our last forecast, the impact is mainly due to changes in macroeconomic forecasts. The recovery of real GDP growth rates in most countries or regions is postponed to the second quarter of 2021 (one quarter later).

In terms of trade volume, we now expect global trade to fall to 12.8 billion tons in 2020 and increase to 13.5 billion tons and 14.9 billion tons by 2021 and 2022, respectively. Therefore, we expect that the global trade volume will drop by about 10.7% in 2020 and will recover in the next few years. It will increase by 5.4% in 2021 and 10.2% in 2022. Therefore, we predict that the recovery will be longer, and growth will not be truly restored until 2022.

However, the above forecasts still need to be highly cautious. Economic development is highly dependent on the trend of the epidemic, and the future cannot be fully predicted at this stage, and the actual results are more likely to be different from our predictions. If there is a serious second wave of the epidemic, it may plunge us into two or even three blows. The next three months are crucial and will directly determine the adjustments we will make in our next forecast (to be released in November).