The quicker global trade can recover from the COVID-19 pandemic, the better the global economic recovery will be, say many trade experts. Although recovery and rejuvenation are top of mind for many governments, businesses, and communities, there are significant gaps in how and who is recovering and at what speed. Here, we take a look at some indicators of recovery across the globe with a trade lens.
Consumer Spending
Consumer spending is an important aspect of recovery as more spending drives more demand for goods and services across the world. According to the World Economic Forum, almost two-thirds of consumer spending accounts for all economic activity globally. Within the US and across Western Europe, consumer spending declined between 11% and 26 %, and China had reported a 17% drop in Q1 of 2020 (World Economic Forum, 2021). Increased consumer spending will likely result in a faster recovery for each country. The variations of how each age group, income level, and country respond with their pocketbooks are key recovery indicators. Mckinsey & Company surveyed consumer spending across China, France, Germany, the UK, and the US using income levels and age to understand how spending habits adjusted during the pandemic and how spending will likely change as the threat of the pandemic eases. “We expect a strong recovery in the United States but an unequal one with variations among income and age segments. While many higher-income households emerge largely unscathed financially, low-income households have lost jobs or face income uncertainty, particularly from changes in the labor market caused by digitization and automation (Remes, et al., 2021).” Once they gained control of the pandemic, China’s spending returned to near pre-pandemic rates by the end of 2020. For consumers outside of these ranges, recovery is expected to take more time and be uneven. In Europe, a slower recovery than the US is anticipated, but a more even return to spending across age and income levels is expected.
Another aspect of consumer spending is saving. Consumer savings, whether by choice or necessity, are at their highest point in decades. The Wall Street Journal reports that family checking account balances were up by as much as 40% in October 2020 in the US. However, much of the increased wealth in savings is a problematic indicator of recovery. Studies show that the majority of the increases are within the accounts of higher-income consumers (Lahart, 2021). Some of these increases can be slated to the US’s stimulus payments and fewer dollars spent on travel, restaurants, and entertainment. Other studies show that households in wealthy countries have an increased focus on paying down existing debt rather than spending on consumer goods (Hannaon, 2021). The hope by many economists is that more spending will come as people across the globe find easing pandemic restrictions and reduction in cases. Spending in many industries is expected to bouce back to pre-pandemic levels. McKinsey group found that consumer spending in eCommerce, online grocery services, and virtual healthcare are here to stay. While the extreme reduction in in-person education, travel, and entertainment spending are habits that will be remembered as a pandemic blip and remain in the past (Remes, et al., 2021).
Global Trade and Industry Recovery
The United Nations reported that world trade contracted by 9% in 2020. Asia has been at the forefront of recovery with strong export growth, and many pandemic-related industries saw increases by the end of 2020, including pharmaceuticals, technology, and manufacturing. The energy and transportation sectors have not been as quick to recover (Thomasson, 2021).
IHS Markits Global Trade Outlook for 2021 describes the pandemic’s impact on trade moving forward, “We already understand that the impact of a pandemic won’t be limited to the short-run. It is likely to have long-term consequences as well. We are likely to observe more pronounced adjustments to GVC (Global Value Chains)/trade patterns (trade diversion effects) the larger, the longer the pandemic lasts” (Brodzicki, 2021). These comments are not surprising, but what has been a cause for hope is the 2021 first-quarter trade data shows a rebound of many industries to pre-pandemic levels.
In May 2021, the United Nations Conference on Trade Development (UNCTD) released quarter one findings, sharing that many of the major economies have, by the numbers, recovered from the pandemic. The US and China are expected to be drivers of the economic rebound, and their key trading partners will likely benefit (Canada, Mexico, and East Asian countries). However, services, energy, and transportation sectors are still lagging. Uneven recovery is apparent among developing countries as the pandemic is not yet under control. The report also points to uncertainty in value chains, government policies, increasing government debt, and trade tensions, all as factors in recovery (UNCTAD, 2021).
Merchandise trade saw sharp declines in the first quarter of 2020, but by June 2020, the numbers started to look up. By the end of 2020, merchandise trade saw a growth of exports of 7.8% year over year from December 2019 (Trade for Development News, 2021). In the first quarter of 2021, goods and merchandise trade is moving, as we can see from global container shipping statistics. “Global container shipping, a real-time measure of international trade, recovered strongly over the summer, and as of 15 February, global trade carrying capacity stands 5.3% higher than at the same time last year (Trade for Development News, 2021).” Some industries are going to be slower to recover, and consumer spending will determine the speed of the recovery.
The pandemic overall impacted agricultural trade less than other industries but for different reasons. Barchiello surveyed agricultural trade exports and honed in on Canada’s market, which grew 11% more than anticipated through 2020. The prosperity was not linked to the pandemic but other global weather patterns causing crop failure, China’s increased need for feed as they rebuild hog herds, and India’s reduction on lentil tariffs. This lack of connection to the virus reminds all of us that the global pandemic is not the only player in supply chain and agriculture commodity prices.(Barichello, 2021).
If countries continue to take advantage of the momentum through liberalization on tariffs and improved logistics, recovery will be long-lasting and benefit many growing economies. More than half of multinational businesses (surveyed by the World Bank) have increased their use of digital technologies out of necessity for doing business during the pandemic. Adopting such technologies comes with increased ease in logistics, supply chain management, and optimizing capacity for many developing businesses. Companies not engaging in these types of shifts will see a slower-paced recovery. Investment in global trade is needed to spur growth, but many investors are cautious as lockdowns and pandemic spikes continue into 2021. For low-income and developing countries, policy changes and embracing digital technologies to streamline their efforts will be key for recovery. Still, with limited resources, it will take more time for development and adoption. Several governments provided stimulus programs, which have proven in the past to be a viable effort in spurring growth, but the long-term impact for this pandemic and stimulus payments are yet to be seen.
Many unknowns are still ahead as the pandemic continues globally, and it is apparent that recovery will be a long and arduous process. Even though recovery is well underway, the recovery process will likely be uneven across people, sectors, and governments in many cases. Overall, international trade has made people, companies, and governments more resilient to the downsides of the global pandemic, and 2021 is already bringing a quicker recovery than anticipated.
Works Cited
Barichello, R. (2021, May 6). Revisiting the effects of the COVID-19 pandemic on Canada’s agricultural trade: The surprising case of an agricultural export boom. Retrieved from https://onlinelibrary.wiley.com/doi/10.1111/cjag.12285
Brodzicki, T. (2021, February 03). IHS Markit. Retrieved from Global Trade Outlook 2021: https://ihsmarkit.com/research-analysis/global-trade-outlook-for-2021.html
Hannaon, P. (2021, May 2). Covid-19 Savings Stockpile Could Accelerate Economy—if Consumers Spend It. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/covid-19-savings-stockpile-could-accelerate-economyif-consumers-spend-it-11619967601
Lahart, J. (2021, February 26). Americans of All Stripes Are Flush With Cash. Retrieved from The Wall Stree Journal: https://www.wsj.com/articles/americans-of-all-stripes-are-flush-with-cash-11614359700?mod=article_inline
Remes, J., Manyika, J., Smit, S., Kohli, S., Fabius, V., Dixon-Fyle, S., & Nakaliuzhnyi, A. (2021, March 17). The Consumer Demand Recovery and Lasting Effects of COVID-19. Retrieved from McKinsey & Company: https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-consumer-demand-recovery-and-lasting-effects-of-covid-19
Thomasson, E. (2021, February 10). Recovery in Global Trade to Stall Again in First Quarter: U.N. Report. Retrieved from Reuters: reuters.com/article/us-trade-un/recovery-in-global-trade-to-stall-again-in-first-quarter-u-n-report-idUSKBN2AA0HC
Trade for Development News. (2021, March 18). Recovery Taking a Different Shape than Expected. Retrieved from https://trade4devnews.enhancedif.org/en/op-ed/global-trade-rebound-suggests-some-lessons-covid-19-are-being-learned
UNCTAD. (2021, May 19). Global Trade Update May 2021. Retrieved from United Nations Conference on Trade and Development: https://unctad.org/system/files/official-document/ditcinf2021d2_en.pdf
United Nations Conference on Trade Development. (2021, May 19). Global Trade’s Recovery from COVID-19 Crisis Hits Record High. Retrieved from UNCTAD: https://unctad.org/news/global-trades-recovery-covid-19-crisis-hits-record-high
World Economic Forum. (2021, May 7). 3 reasons why consumer demand matters for the post-COVID-19 recovery. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2021/05/consumer-demand-covid-19-recovery/