World merchandise trade appears to have rebounded strongly after plummeting amid the COVID-19 pandemic, according to the WTO’s latest Goods Trade Barometer released on 20th November 2020.
However, whether growth can be sustained going forward is unclear.
The Goods Trade Barometer’s current reading of 100.7 marks a dramatic improvement from the 84.5 recorded last August, which reflected collapsing trade and output in the second quarter as lockdowns and travel restrictions were employed to fight the virus.
A sharp rise in the barometer index was driven by a surge in export orders, but mixed readings in other components and the resurgence of COVID-19 could weigh on trade in the coming months.
The latest reading indicates a strong rebound in trade in the third quarter as lockdowns were eased, but growth is likely to slow in the fourth quarter as pent-up demand is exhausted and inventory restocking is completed.
The WTO in the latest reading noted that trade-related uncertainty remains high.
“The second wave of COVID-19 infection is already underway in Europe and North America, leading to renewed lockdowns that could trigger another round of business closures and financial distress. On a more positive note, progress has been reported in the development of a vaccine, but when and how it might be deployed is not yet known”.
WTO
The Goods Trade Barometer is designed to gauge momentum and identify turning points in world trade growth in real-time. Readings of 100 indicate expansion in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate below-trend growth.
All of the barometer’s component indices were rising in the latest months, with some climbing above their medium-run trends while others remained depressed. The recovery in the overall barometer index was driven by export orders (113.5) and agricultural raw materials (103.6), both of which finished firmly above the trend. The indices for container shipping (102.0) and automotive products (94.6) also recovered substantially to near trend, while those for air freight (88.5) and electronic components (94.6) remained below trend.
The latest reading of the Goods Trade Barometer is consistent with the WTO’s revised trade forecast of 6 October 2020, which predicted a 9.2% decline in the volume of world merchandise trade in 2020. This outcome would require a sharp rebound in the third quarter following the 17.2% year-on-year decline registered in the second quarter.
Normally the Goods Trade Barometer anticipates turning points in world trade by a few months, but new sources of uncertainty related to the COVID-19 pandemic may have reduced the predictive value of its component indices. Under these circumstances, higher-frequency (i.e. daily or weekly) statistics may provide additional signals of economic activity and trade to complement the standard set of indicators. These indicators point to a stalled recovery of international flights and container shipping in October, but improved economic sentiment as reflected by copper futures and press reports.
International commercial flights, 1 January 2020 – 31 October 2020
The number of international flights per day recorded by the OpenSky Network since the start of 2020, including both passenger and cargo flights shows that flights fell nearly 80% between late February and mid-April, but then returned to around 50% of their level at the start of the year by mid-August. Since then, total flights have stagnated and intra-EU flights have fallen, dropping around 30% between 20 September and 31 October reflecting the recent resurgence of COVID-19 in Europe.
Number of daily port calls of container ships, 1 January 2020 – 11 November 2020
The number of daily port calls of container ships since the beginning of 2020 recorded by the Automatic Identification System (AIS) developed by the International Maritime Organization fell in February when COVID-19 already strongly hit China before rebounding in March. A more prolonged slump was recorded in April and May as countries around the world imposed lockdowns in response to the new global pandemic. Port calls returned to their level at the start of the year by the end of July but has since stagnated. Although they remain stable, they at least show no signs of a new downturn as of 14 October.
COMEX high-grade copper futures, 11 November 2019 – 11 November 2020
Prices of futures contracts for copper are a widely recognized leading indicator of economic activity due to the importance of this metal in many areas of manufacturing. Standardized contracts are traded on the COMEX exchange, a division of the Chicago Mercantile Exchange (CME). Copper futures prices fell 24% between 15 February and 20 March but have risen continuously since, climbing 44% up to 10 November, including a 10% jump since the beginning of October. This would suggest a high degree of economic confidence despite the recent resurgence of COVID-19.
Visualization of phrases related to economic activity, 12 August 2019 – 12 November 2020
The daily volume and average tone of news reports containing the phrase “economic activity”, as monitored by the GDELT Project showed that the tone index fell sharply as press coverage became more negative between January and March, then rose gradually between April and September as the incidence of COVID-19 declined in major economies.
The tone of press reports turned more negative in October as cases surged in Europe and North America, with an uptick registered following the announcement of an effective coronavirus vaccine on 9 November. The volume index moved in the opposite direction, rising in late October as COVID-19 surged, then dipping after the vaccine announcement.
