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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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MDBs’ Annual Climate Finance Passes $61 Billion

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Climate financing by seven of the world’s largest multilateral development banks (MDBs) totaled $61.6 billion in 2019, with $41.5 billion (67%) in low- and middle-income economies, according to the 2019 Joint Report on Multilateral Development Banks’ Climate Finance.

In addition to its traditional focus on low- and middle-income countries, the 2019 report expands the scope of reporting for the first time to all countries of operations.

Some $46.6 billion, or 76% of total financing for the year, was devoted to climate change mitigation investments that aim to reduce harmful greenhouse gas emissions and slow down global warming.

The remaining $15 billion, or 24%, was invested in adaptation efforts to help countries build resilience to the mounting impacts of climate change, including worsening droughts and more extreme weather events from extreme flooding to rising sea levels.

The report combines data from the Asian Development Bank (ADB), the African Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank Group, the World Bank Group and—for the first time—the Islamic Development Bank, which joined the working group in October 2017. In 2019, the Asian Infrastructure Investment Bank also joined MDB working groups, and its data is presented separately in the report.

Additional climate funds channeled through MDBs—such as from the Climate Investment Funds, the Global Environment Facility Trust Fund, the Global Energy Efficiency and Renewable Energy Fund, the European Union’s Funds for Climate Action, and the Green Climate Fund—also play an important role in boosting MDB climate financing. In 2019, the MDBs reported a further $102.7 billion in net climate cofinancing from public and private sources. This raised the total climate activity financed by MDBs in 2019 to $164.3 billion.

“The growing flow of MDB climate finance shows our joint resolve to take on climate change and, in the face of the coronavirus disease (COVID-19) pandemic, it is more important than ever to ‘build back better’ in a low carbon and climate resilient way,” said the Director General of ADB’s Sustainable Development and Climate Change Department Woochong Um. “The report shows that climate finance provided by and through the MDBs is providing increasing support for these needed transitions.”

In 2019, ADB committed almost $7.1 billion in climate finance (more than $5.5 billion for mitigation and $1.5 billion for adaptation). This included $705 million from external resources, including multilateral climate funds. Further, ADB mobilized $8.8 billion of climate cofinancing.

The report shows that the MDBs are on track to deliver on their increased climate finance commitments. In 2019, the MDBs committed their global annual climate financing to reach $65 billion by 2025—with $50 billion for low- and middle-income countries—and that MDB adaptation finance would double to $18 billion by 2025. The MDBs have reported on climate finance since 2011, based on a jointly developed methodology for climate finance tracking.

The 2019 Joint Report on Multilateral Development Banks’ Climate Finance is published in the midst of the COVID-19 pandemic, which has caused significant social and economic disruption, temporarily reducing global carbon emissions to 2006 levels.

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Public Transport Can Bounce Back from COVID-19 with New and Green Technology

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Public transport must adapt to a “new normal” in the wake of the coronavirus disease (COVID-19) pandemic and adopt technologies that will render it more green and resilient to future disasters, according to a new report by the Asian Development Bank (ADB).

The report, Guidance Note on COVID-19 and Transport in Asia and the Pacific, details the profound impact of the pandemic on transport, as swift lockdowns forced millions this year to work from home overnight, schools to shift to e-learning, and consumers to flock to online shopping and food delivery.

While public transit may have been previously perceived as a mostly green, efficient, and affordable mode of travel, initial trends in cities that have re-opened have indicated that public transit is still considered to be relatively unsafe and is not bouncing back as quickly as the use of private vehicles, cycling, and walking.

“The two key challenges ahead are addressing capacity on public transport to maintain safe distancing requirements, and how best to regain public confidence to return to public transport,” said Bambang Susantono, ADB Vice-President for Knowledge Management and Sustainable Development. “In the short term, more effort is needed to reassure public transport users of safety and demonstrate clean and safe public transport. In the longer term, technological advances, big data, artificial intelligence, digitalization, automation, renewables and electric power can potentially offer fresh innovations to tackle changing needs, giving rise to smarter cities.”

While drastic lockdown measures around the world have brought world economies to their knees, satellites have recorded data on how the concentrations of CO2 and air pollutants have fallen drastically, bringing clear blue skies to many cities.

But as cities have reopened, traffic levels have increased. For example, Beijing traffic levels, by early April 2020, exceeded the same period in 2019. If this trend is seen on a wide scale, it could set back decades of effort in promoting sustainable development and more efficient means of urban mobility.

The report says there is a short window of opportunity for cities to promote the adoption of low-carbon alternatives to lock-in the improved air quality conditions gained during the peak of the pandemic lockdown. Public transport can play an important role through more active promotion of clean vehicles, provision of quality travel alternatives in public transport, and a better environment for non-motorized modes such as walking and cycling to enhance overall health and wellbeing.

The confidence of passengers on public transport should be restored through protective measures such as cleaning, thermal scanning, tracking and face covering, the report says. Further study to explore how protective and preventive measures can be stepped up to allow relaxation of safe distancing requirements would help mitigate capacity challenges. A possible future trend may be consolidation of services and rationalization of routes to better serve the emerging travel demand patterns and practices.

As countries enter the “recovery” phase, further preventive and precautionary operating measures and advanced technology should be implemented to enable contactless processes and facilitate an agile response. Demand management measures can facilitate crowd control in public transport systems and airports. As a complementary measure, non-motorized transport capacity could be expanded to absorb spillover demand from public transport.

Since mass public transport is the lifeblood of most economies, government policies and financial support are essential during this period, to enable public transport operators to stay viable and continue to support the movement of passengers and goods in a sustainable way.

For ADB, which committed last year $7 billion to the transport sector, behavioral trends linked to COVID-19 may require a review of the short-term viability of passenger transport and operational performance to meet changing demand for public transit systems. “Regardless of the COVID-19 pandemic it is clear that developing Asia will continue to have a large need for additional transport infrastructure and services,” the report concludes. “It would take several years before the projects currently in the pipeline would be operational and much can happen during these years.”

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Zero emission economy will lead to 15 million new jobs by 2030 in Latin America and Caribbean

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In a new groundbreaking study , the Inter-American Development Bank (IDB) and the International Labour Organization (ILO) show that the transition to a net-zero emission economy could create 15 million net new jobs in Latin America and the Caribbean by 2030. To support a sustainable recovery from the COVID-19 pandemic , the region urgently needs to create decent jobs and build a more sustainable and inclusive future.

The report finds that the transition to a net-zero carbon economy would end 7.5 million jobs in fossil fuel electricity, fossil fuel extraction, and animal-based food production. However, these lost jobs are more than compensated for new employment opportunities: 22.5 million jobs are created in agriculture and plant-based food production, renewable electricity, forestry, construction, and manufacturing.

The report is also the first of its kind to highlight how shifting to healthier and more sustainable diets, which reduce meat and dairy consumption while increasing plant-based foods, would create jobs and reduce pressure on the region’s unique biodiversity. With this shift, LAC’s agri-food sector could expand the creation of 19 million full-time equivalent jobs despite 4.3 million fewer jobs in livestock, poultry, dairy and fishing.

Moreover, the report offers a blueprint on how countries can create decent jobs and transition to net-zero emissions. This includes policies facilitating the reallocation of workers, advance decent work in rural areas, offer new business models, enhance social protection and support to displaced, enterprises, communities and workers.

Social dialogue between the private sector, trade unions, and governments is essential to design long-term strategies to achieve net-zero emissions, which creates jobs, helps to reduce inequality and delivers on the Sustainable Development Goals .

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