While global trade was already slowing down prior to the Covid-19 pandemic, the United Nations Conference on Trade and Development (Unctad) states that economic and social disruptions brought about by Covid-19 are resulting in a dramatic decline in trade.

As laid out in Unctad’s global trade update for June, the value of international trade in goods has declined by about 5% in the first quarter of this year and is expected to decline further by 27% in the second quarter of the year.

Leading indicators, such as the Purchasing Manager Indices (PMIs), also signal further deterioration of international trade in the second quarter. While PMIs tracking international trade indicate that the pace of contraction has slowed in May, they have remained well below the 50 points benchmark.

Unctad notes that international trade is likely to remain below the levels observed in 2019 in the second half of this year, the magnitude of which will be dependent not only on additional economic disruptions brought by the Covid-19 pandemic, but also on the type and extent of policies that countries adopt to restart their economies.

Assuming persisting uncertainty, Unctad expects a decline of around 20% for the year, which is in line with predictions by the World Trade Organisation (WTO), which expects that the decline in international trade will be between 13% and 32%.

Further, the European Commission expects that the 27 European Union member States’ trade will decline by between 10% and 16% this year.

Unctad notes that the range of estimates is a sign of the still high uncertainty about the possibility of any economic recovery in the second half of the year.

WIDESPREAD IMPACT

Unctad points out that statistics for some of the major economies further reinforce the bleak picture for international trade.

Most recent trade figures indicate further deterioration in April and May.

In addition, except for the first two months of this year, China appears to have fared better than other major economies, as its exports grew by 3% in April. However, the organisation also highlights that the most recent data for China indicates that such recovery may be short-lived as imports and exports fell by about 8% in May.

Intra-regional trade also appears to have declined to a much lower rate for countries in the East Asian and Pacific regions, according to Unctad.

For the European Union, intra-regional trade has declined at a similar pace as overall trade, while the US’s statistics indicate a much stronger decline of intra-regional trade.

Meanwhile, economic disruptions brought by Covid-19 have affected some sectors significantly more than others. In the first quarter of this year, textiles and apparel declined by almost 12%, while the office machinery and automotive sectors have fallen by about 8%.

However, the value of international trade in the agri-food sector increased by about 2%.

Preliminary data for April indicates further declines in most sectors and a very sharp contraction in trade of energy and automotive products, about -40% and -50% in values respectively.

Significant declines are also observed in chemicals, machineries and precision instruments with drops above 10%. Conversely, office machinery appears to have rebounded in April, largely because of the positive export performance of China.

Trade in agri-food products has been the least volatile so far. In general, the variance across sectors has been driven by decreases in demand and disruptions of supply capacity and on disruption of global value chains owing to Covid-19, according to Unctad.

MEDICAL PRODUCTS TRADE

One of the side-effects of the Covid-19 pandemic has been the increase in demand for medical goods and equipment such as ventilators, monitors, thermometers, hand sanitisers, protective masks and garments.

In the early months of this year, Unctad notes, the rapid diffusion of Covid-19 internationally resulted in a race to secure supply of such goods, and in some instances of export restrictions.

Product level data for the three major economies shows that international trade played a positive role in meeting demand of medical products related to Covid-19. While international trade of such medical goods contracted at the onset of the pandemic, it then increased in February and March and almost doubled in April, thus contributing to the availability of critical equipment to countries affected by Covid-19.

In this regard, Unctad points out that the first two months of this year saw the increase in Chinese domestic demand for such medical products resulting in a strong increase in imports. This demand was largely met by increases in exports from Europe and the US which were not yet significantly hit by Covid-19.

Noteworthy is also that Chinese exports of such equipment declined by 15% in the first two months of the year as Chinese supply reoriented towards domestic demand.

Data for March shows that imports of medical equipment continued to increase in China (41% increase) but also in the European Union (21% increase). April saw a massive increase in Chinese exports of medical equipment (338% increase). This surge was largely driven by exports of protective equipment.

Finally, April data for the US reflect the increasing concern for the Covid-19 pandemic as imports of medical products increased by almost 60% while exports declined by about 20%.