The World Trade Organisation (WTO) says in its latest outlook that global trade is showing signs of recovery, predicting a 9.2 per cent decline in the volume of world merchandise trade for 2020, followed by a 7.2 per cent rise in 2021.

That’s an optimistic picture given the organization had in April forecasted that global trade could fall between 13 per cent and 32 per cent in 2020 due to the uncertainty around the Covid-19 pandemic.

The less severe growth expected this year is attributed to the strong trade performance registered in June and July, mainly driven by growth in Covid-19 related products.

For instance, trade in facemasks in the first six months of 2020 reached $71 billion, an increase of 87 per cent compared to the same period last year.

"The performance of trade for the year to date exceeded expectations due to a surge in June and July as lockdowns were eased and economic activity accelerated,” the organisation said in the revised outlook.

However, the Geneva-based body cautions that the pace of expansion could slow sharply once pent up demand is exhausted and business inventories have been replenished.

"More negative outcomes are possible if there is a resurgence of Covid-19 in the fourth quarter,” it said on Tuesday.

The WTO’s April prediction would rival the Great Recession of 2008-2009, but Xiaozhun Yi, the organisation’s deputy director general said the financial crisis was mostly a demand shock.

The Covid-19 pandemic and the associated containment measures, on the other hand, affects both the supply and demand size of the global economy.

"The net result has been a deeper but less prolonged decline in trade, although considerable uncertainty remains about the strength of any recovery going forward,” he said.

The big picture

The trade slump in 2020 will be accompanied by a decline in global GDP growth of 4.8 per cent followed by a 4.9 per cent jump in 2021, but it is highly dependent on policy measures and on the severity of the disease.

According to Robert Koopman, the WTO Chief Economist, trade is being more resilient compared to the financial crisis, particularly for critical products that are helping to mitigate the effects of the Covid-19 crisis.

"We also think consumers have shifted some spending from services sectors to goods,” he noted.

Services that are known to have been hit harder include air transport, tourism, hospitality, which includes hotels and restaurants, and on a certain scale financial services.

Estimates show that trade in agricultural products fell less than the world average in the second quarter (-5 per cent versus -21 per cent) since food is a necessity that continues to be produced and shipped even under the strictest lockdown conditions.

Meanwhile, trade in fuels and mining products fell sharply by 38 per cent as prices collapsed and people consumed less owing to travel restrictions.

The drop in manufactured goods trade (-19 per cent) was comparable to the decline in merchandise trade overall.

Koopman said firms have been rebuilding inventories perhaps because they are anticipating a potential resurgence in virus cases that might even cause more disruption.

Whether the recovery can be sustained over the medium term, WTO economists say it will depend on the strength of investment and employment.

However, both could be undermined if confidence is hurt by new outbreaks of Covid-19, which might force governments to impose additional lockdowns.