World merchandise trade volume growth remained strong in the fourth quarter of 2020 after trade rebounded in the third quarter from a deep Covid-19 induced slump; however, the pace of expansion in the fourth quarter is unlikely to be sustained in the first half of 2021 since key leading indicators appear to have already peaked, according to the WTO’s latest Goods Trade Barometer of February 18.
The barometer's current reading of 103.9 is above both the baseline value of 100 for the index and the previous reading of 100.7 from last November, signalling a marked improvement in merchandise trade since it dropped sharply in the first half of last year. All component indices are either above trend or on trend, but some already show signs of deceleration while others could turn down in the near future. Furthermore, the indicator may not fully reflect resurgence of Covid-19 and the appearance of new variants of the disease, which will undoubtedly weigh on goods trade in the first quarter of 2021.
Indices for export orders (103.4) and automotive products (99.8), which are among the most reliable leading indicators for world trade, have both peaked recently and started to lose momentum. In contrast, the container shipping (107.3) and airfreight (99.4) indices are both still rising, although higher-frequency data suggest that container shipping has dipped since the start of the year. Finally, while the indices for electronic components (105.1) and raw materials (106.9) are firmly above trend, this could reflect temporary stockpiling of inventories. Taken together, these trends suggests that trade's upward momentum may be about to peak if it has not already done so.
In the third quarter of 2020, the seasonally adjusted volume of world merchandise trade bounced back from a deep second quarter slump, boosted by rising exports in Asia and increasing imports in North America and Europe. Goods trade in the third quarter, nevertheless, was still down 5.6% compared to the same period in 2019 after having fallen 15.6% in the second quarter. These declines, while still very large, are less severe than many analysts feared at the start of the pandemic.
The WTO's most recent trade forecast of October 6, 2020 predicted a 9.2% drop in the volume of world merchandise trade in 2020, but the actual decline may be slightly less severe.
Prospects for 2021 and beyond, moreover, are increasingly uncertain due to the rising incidence of Covid-19 worldwide and the emergence of new variants of the disease. Recovery will depend to a large extent on the effectiveness of vaccination efforts. The WTO expects to release its next trade forecast in mid-April.
- WTO
