World services trade appears to be in a recovery phase, after falling sharply during the global pandemic. This is according to the WTO’s Services Trade Barometer, which has recently risen firmly above trend.
However, continued weakness in some sectors and an uneven distribution of COVID-19 vaccines cast some doubt on the durability of the recovery.
Overall readings
The services trade barometer is designed to highlight turning points and changing patterns in world services trade. The latest index reading of 104.7 is the strongest on record since 2000. The index is well above the baseline value of 100 that denotes growth in line with recent trends.
The new index reading is also significantly above the low point of 91.2 for March 2020. That was the peak of lockdown measures associated with the pandemic. The strength of the rebound suggests that growth in world services trade accelerated in the fourth quarter of 2020. This was after bottoming out in the second quarter and picking up only slightly in the third.
However, the WTO warned that Momentum may not be sustained in the first quarter of 2021, however, lockdown measures in response to the second wave of COVID-19 infections have continued to weigh on growth and employment in major economies since the start of the year.
Services sub-sectors
The impact of the second wave is reflected in the barometer’s component indices such as a persistent weakness in air transport (81.0). There is also a downturn in information and communications technology (ICT) services (93.7).
The WTO warned that International passenger flights will probably remain weak at least into the second quarter. However, the report said we could see a partial recovery in Q3 if governments succeed in vaccinating large numbers of people against COVID-19. Yet, the spread of new variants could lead to new setbacks.
The dip in the ICT index may also turn out to be temporary, as it appears to have been driven by stricter lockdowns in the US weighing on some computer services. On the other hand, telecom services have remained steady.
In contrast, other component indices have all risen above the trend. This includes the global services Purchasing Managers’ Index (105.3), container shipping (104.3), and construction (106.3). The financial services index (119.9) had an especially strong showing, reflecting a rise in international financial transactions.
Services Trade Barometer (STB)
The Services Trade Barometer (STB) is a composite coincident indicator of world services trade activity, combining six-component indices. The services trade activity is an approximate measure of the volume of world services trade. It is calculated by adjusting nominal services trade statistics to account for changes in prices and exchange rates.
Unlike its counterpart for goods, fluctuations in the Services Trade Barometer tend to coincide with movements in actual trade flows rather than anticipating them. Readings of 100 indicate growth in line with medium-term trends. Readings greater than 100 suggest above-trend growth while those below 100 indicate the opposite. The direction of change reflects momentum compared to the previous month.
