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Trade tensions and coronavirus: Global services export market faces uncertainty

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Despite steady growth over the last decade, the future prospects for global services trade are likely to be dampened by the coronavirus (COVID-19) epidemic, its likely impact on the global travel and transport service export sectors, and the ongoing slowdown in global goods trade, according to PwC’s latest Global Economy Watch. 

Mixed outlook for global services trade

Service exports account for around 23% of global exports and, while they remain largely exempt from the tariffs inflicted by escalating trade wars, the growth rate of service exports is highly correlated with growth in merchandise exports, highlighting the direct link between trading goods across borders and demand for global transport services.

Looking further ahead into the medium to long-term, the prospects for global services trade are more positive due to continued technological developments, improved access to high-speed internet and real income growth in emerging markets. Barret Kupelian, senior economist at PwC, commented:

“In the short-term, we expect a slowdown in the largest services exports sector, travel, due to COVID-19. China is the world’s largest source of international tourists. In 2018, Chinese tourists made 150 million outbound trips and accounted for around one fifth of global tourism spending. Depending on how long travel restrictions continue and how wide the spread of the virus is, there could be significant consequences for the international travel and tourism sector.

“In the medium to long term, however, the outlook for services exports is more positive. In our last World in 2050 report, we projected continued growth in real income levels across both the G7 and E7, which will generate demand for more services. Continued technological breakthroughs, coupled with the spread of faster and cheaper internet connections, mean that newer, more specialised services will continue to be developed, and that it will be easier to trade these across borders. On the regulatory front, there are also some tentative steps being made by the World Trade Organization to set rules for the digital economy, e-commerce and data flows, which could provide an additional impetus to services trade if successfully concluded.”

Shifting balance of power in services

Most of the initial economic analysis on the potential impact has focused on the 2003
US, UK and Germany world’s largest service exporters

The effects of the shift in global economic power from the West to the East that first started with the manufactured goods sector is now shifting into the services sector. The G7’s share has steadily fallen from 45% in 2005 to 38% in 2018. Meanwhile, the E7’s share has risen from 9% to 12%. 

However, the US continues to be the top global exporter of services with a massive 14% share of the global market. The UK, Germany and France follow with shares of 5-6%. China is now the world’s 5th largest services exporter, overtaking the Netherlands, Spain and Italy. China’s exports of services have grown by an average rate of 8% per annum since 2010 in real US$. Meanwhile, India has overtaken Japan and bagged the 8th spot in the global rankings of service exporters in 2018, up from 14th in 2005.  

Globally the fastest growing sector since 2005 has been telecommunications, computer and information services, driven predominantly by the emerging markets. Its share of global service exports has grown from 7% to 10% in the last 15 years and, with global internet users expected to grow from 60% of the world’s population today to around 90% by 2030, growth looks set to continue. 

Economic impact of coronavirus

While most of the initial economic analysis on the potential impact of COVID-19 has focused on the 2003 SARS outbreak as a comparator, at the time of the SARS epidemic, the Chinese economy accounted for less than 10% of global GDP in purchasing power parity (“PPP”) terms. Today, China accounts for almost 20%, and for about 11% of total global exports (goods and services) so the economic impact could be substantially larger relative to the SARS episode. 

In addition, following China’s entry to the World Trade Organisation in 2001, businesses are increasingly reliant on supply chains that include China, with South East Asian economies more reliant on China as a source of input to their exports, compared to the other advanced economies in the West. Business surveys due out today will start to give an indication of the extent of potential slowdown. 

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Wide Variations in Post-COVID ‘Return to Normal’ Expectations

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London, UK, Covid-19 restrictions in place in Soho. IMF/Jeff Moore

A new IPSOS/World Economic Forum survey found that almost 60% expect a return to pre-COVID normal within the next 12 months. including 6% who think this is already the case, 9% who think it will take no more than three months, 13% four to six months, and 32% seven to 12 months (the median time). About one in five think it will take more than three years (10%) or that it will never happen (8%).

Views on when to expect a return to normal vary widely across countries: Over 70% of adults in Saudi Arabia, Russia, India, and mainland China are confident their life will return to pre-COVID normal within a year. In contrast, 80% in Japan and more than half in France, Italy, South Korea, and Spain expect it will take longer.

At a global level, expectations about how long it will take before one’s life can return to its pre-COVID normal and how long it will take for the pandemic to be contained are nearly identical. These findings suggest that people across the world consider that being able to return to “normal” life is entirely dependent on containing the pandemic.

An average of 45% of adults globally say their mental and emotional health has gotten worse since the beginning of the pandemic about a year ago. However, one in four say their mental health has improved since the beginning of the year (23%), about as many that say it has worsened (27%).

How long before coronavirus pandemic is contained?

Similar to life returning to pre-COVID normal, 58% on average across all countries and markets surveyed expect the pandemic to be contained within the next year, including 13% who think this is already the case or will happen within 3 months, 13% between four and six months and 32% between seven and 12 months (the median time in most markets).

Majorities in India, China, and Saudi Arabia think the pandemic is already contained or will be within the next 6 months. In contrast, four in five in Japan and more than half in Australia, France, Poland, Spain, and Sweden expect it will take more than a year.

Change in emotional and mental health since beginning of the pandemic about a year ago

On average across the 30 countries and markets surveyed, 45% of adults say their emotional and mental health has gotten worse since the beginning of the pandemic about a year ago, three times the proportion of adults who say it has improved (16%)

In 11 countries, at least half report a decline in their emotional and mental health with Turkey (61%), Chile (56%), and Hungary (56%) showing the largest proportions.

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African fisheries need reforms to boost resilience after Covid-19

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The African fisheries sector could benefit substantially from proper infrastructure and support services, which are generally lacking. The sector currently grapples with fragile value chains and marketing, weak management institutions and serious issues relating to the governance of fisheries resources.

These were the findings of a study that the African Natural Resources Centre conducted from March to May 2020. The centre is a non-lending department of the African Development Bank. The study focused on the impact of the Covid-19 pandemic in four countries – Morocco, Mauritania, Senegal and Seychelles. The countries’ economies depend heavily on marine fisheries. The fisheries sector is also a very large source of economic activity elsewhere in Africa. It provides millions of jobs all over the continent.

The study dwells on appropriate and timely measures that the four countries have taken to avoid severe supply disruptions, save thousands of jobs and maintain governance transparency amid the ongoing global uncertainty and crisis.

Infrastructure shortcomings include landing facilities, storage and processing capacity, social and sanitary equipment, water and power, ice production, and roads to access markets.

Based on the findings, researchers made recommendations to strengthen the resilience of Africa’s fisheries sector in the context of a prolonged crisis, and looking ahead to a post-Covid-19 recovery.

The report strongly advocates for:

– Increased acknowledgment of the essential role of marine fisheries stakeholders and the right of artisanal fishermen to access financial and material resources.

– Strengthening the collection of gender-disaggregated statistical data in a sector that employs a vast number of women and youth.

– Establishing infrastructure and support services at landing and processing sites of fishery products, with priority access to water.

– Investing in human capital to ensure high-level skills in the different areas of fisheries management.

– Improving governance frameworks by encouraging the private sector and civil society to participate in formulating sectoral policies and resource management measures.

The study recommends urgent reforms to make marine fisheries more resilient and enable the sector to contribute sustainably to the wealth of the continent’s coastal countries.

Marine fisheries are a crucial contributor to food security and quality of life in Africa. Good nutrition is a key factor to quality of life, and the marine fisheries sector supports the nutrition of more than 300 million people, the majority of whom are children, youth and women. It also provides more than 10 million direct and indirect jobs.

Dominated by artisanal fishing and traditional value chains, the fisheries sector in Africa is mainly informal and is rarely considered in public policies or in assessing the wealth of countries.

Like other sectors, the African fisheries sector has been severely hit by the Covid-19 pandemic. Covid has affected supply markets and regional trade. This has resulted in substantial economic losses for most households that depend on fisheries.

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Top Trends Impacting Global Economy, Society and Technology

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The new technologies of the Fourth Industrial Revolution, such as artificial intelligence (AI), the cloud and robotics, are changing the way we live, learn and do business at a rate unprecedented in human history. This seismic shift is playing out in a world characterized by unreliable political landscapes and increasing environmental instability.

Scenario planning in this environment can be very difficult for businesses, affecting their ability to plan for the future, and properly assess the risks and opportunities that may present themselves. The Technology Futures report, released in collaboration with Deloitte, provides leaders with data analysis tools to scenario plan and forecast future technology trends.

“The rapid pace of technological change, alongside the global crisis caused by COVID-19, means that leaders today need new tools to understand challenges and develop strategies in the face of an increasingly uncertain future. This report provides three new analytical tools for business leaders to think about the future in a dynamic environment,” said Ruth Hickin, Strategy and Impact Lead, Centre for the Fourth Industrial Revolution, World Economic Forum.

“We are delighted to collaborate with the World Economic Forum to take a disciplined look into the future, particularly as we emerge from a world-altering event, like COVID-19,” said Mike Bechtel, Managing Director and Chief Futurist, US Consulting, Deloitte, and lead author of the report. “We hope that by providing a clearer picture of how today’s nascent technologies will impact our future, we can play a meaningful part in driving innovation, collaboration and economic growth that improves life for all people.”

The report breaks down future trends into four categories for business leaders and provides some examples of what is likely to remain constant in the years ahead.

  • Information: With the volume of accessible data exploding and more of our personal lives lived online, the report projects the probable implications for remote learning, remote working and healthcare.
  • Locality: Since the onset of COVID-19, even more of our interpersonal interaction is virtual and physical experiences have dwindled. The report projects more niche, readily available virtual experiences available to consumers.
  • Economy: The report forecasts a growing likelihood that flexible and clean energy production will continue rising.
  • Education: Personalized education will likely grow, along with the availability of digitized and virtualized content.

In addition to strategic modelling, the report gives leaders a baseline history of how the Fourth Industrial Revolution has progressed. It highlights just how fast technology is evolving and outlines one way risk management could evolve to better address and adapt to it.

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