World trade growth has peaked, risks skew to downside

Abstract

▪ World goods trade volumes have been edging downward since March, and our survey‐based indicator suggests further short‐term weakness. There is much variation across sectors and economies, but overall, risks to our trade forecasts for 2021 and especially 2022 now look skewed to the downside. ▪ The weakening trend in goods trade is visible in both advanced and emerging markets, but with an uneven pattern across economies. Asian trade levels have moderated, and trade in the US and euro area looks flat. Trade is weak in the Middle East and Africa but rising in Latin America. ▪ The slowdown partly represents Chinese exports retreating from artificially high growth rates associated with the pandemic. But less benign factors are also in play, including ongoing restrictions, port closures and soaring shipping rates. ▪ Sectoral problems are also playing a part. Most notable among these is the weakness in world trade in vehicles, in turn related to chip shortages. Intermediate and consumer goods sectors are generally performing better. ▪ Services trade has been improving, with travel and transport services starting to rebound and other service sectors also posting annual growth. But the recovery has been patchy across economies, and levels of services trade remain low. Services trade is unlikely to offset flagging growth in goods trade. ▪ Travel and tourism services account for 60%–80% of total services exports in many important economies including Turkey, Mexico, Thailand, Australia, and Spain. Their heavy reliance on these sectors will be an ongoing problem given persisting restrictions. Prospects are better for services exporters like the US, Japan, Germany, the Netherlands, and the UK.