Global trade is showing signs of bouncing back from a deep, COVID-19-induced slump, the World Trade Organization (WTO) has said, with the caveat that any recovery could be badly disrupted by the future course of the pandemic and how societies react.
The overall volume of trade in goods across the world is forecasted to fall by 9.2 per cent in 2020, followed by a rise of 7.2 per cent in 2021, according to the trade body.
‘High degree of uncertainty’
However, these estimated are subject to an “unusually high degree of uncertainty” as they depend on the evolution of the pandemic and response by governments, the global trade body added.
The projected decline is nonetheless not as severe as the “optimistic” 12.9 per cent decline WTO laid out in its April trade forecast. The pessimistic scenario was a fall of 32 per cent.
“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”, explained WTO, noting 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 added.
Trade ‘devasted’ in certain goods
According to WTO, the COVID-19 pandemic has had a highly uneven effect on different sectors, as the overall world average fell by 21 per cent.
Trade in agricultural products fell just 5 per cent, given that food, a necessity continued to be produced and shipped even under the strictest lockdown conditions. Fuels and mining products, on the other hand fell by 38 per cent as prices collapsed and people consumed less owing to travel restrictions. Manufactured goods saw a drop of 19 per cent.
Negative global GDP growth in 2020
Forecasts for 2020 global gross domestic product (GDP) – the measure of the market value of all goods and services – was also downgraded to -4.8 per cent, compared to -2.5 per cent under the more optimistic scenario in April.
GDP growth is expected to pick up to 4.9 per cent in 2021, but this is highly dependent on policy measures and on the severity of the disease.
Although the decline during the COVID-19 pandemic is similar in magnitude to the global financial crisis of 2008-09, the economic context is very different. The contraction in GDP has been much stronger in the current recession while the fall in trade has been more moderate, said WTO.
Exports and imports by region
Trading in merchandise recorded its sharpest ever single-period decline in the second quarter, falling 14.3 per cent compared to the previous period, but the impact differed strongly across regions.
The steepest declines were in Europe and North America, where exports fell 24.5 per cent and 21.8 per cent, respectively. In comparison, Asian exports were relatively unaffected, dropping just 6.1 per cent.
During the same period imports were down 14.5 per cent, 19.3 per cent and 7.1 per cent in North America, Europe, and Asia, respectively.
Financing to Support Liberia’s Reforms for Promoting Inclusive Economic Growth
The World Bank Board has approved the third and last in a programmatic series of three Inclusive Development Policy Operations (IGDPO) designed to support key reforms that are critical to enabling inclusive growth. The financing, amounting to $55 million ($47.50 million International Development Association (IDA) concessional credit and $7.50 million IDA grant), will be disbursed as budget support. These reforms will remove distortions in key economic sectors, strengthen public-sector transparency, and promote economic and social inclusion.
The reforms supported in this programmatic series are aligned with the government’s objectives for improving access to quality agriculture seeds, clean and cheaper electricity, financial inclusion, access to social safety nets, and to other public services, especially for the poorest households, including refugees and refugee hosting communities.
“We commend the Government of Liberia for successfully completing this programmatic reform series. The benefits of the reforms implemented are already becoming visible and include among others, the reduction in electricity tariffs and the cost of importing quality-verified solar products which will benefit many households in Liberia,” said Khwima Nthara, World Bank Liberia Country Manager.
This IGDPO builds upon the gains made under the first and second operations of this program approved in 2020 and 2021. The reforms supported by this operation will strengthen the regulatory environment to incentivize private-sector participation in the agriculture seed supply chain, through seed development, multiplication and certification. The actions supported under this operation will contribute to reducing commercial losses and strengthening Liberia Electricity Corporation’s (LEC) financial sustainability, as well as increasing access to solar energy. The previous operation supported the reduction of electricity tariff for poor households from US$0.385/kWh to US$0.22/kWh in May 2021, while this new operation further reduced the tariffs to US$0.15/kWh.
“Numerous regulatory challenges that hindered the growth of digital financial services (DFS) have since been addressed by the Central Bank of Liberia (CBL), with active support from this budget support program along other World Bank Group programs, resulting in Liberia’s National Financial Inclusion Strategy (NFIS) objective of increasing access to formal financial services to 50 percent by 2024 already being exceeded in 2021,” said Mamadou Ndione, World Bank Senior Economist and Task Team Leader of the IGDPO program.
Global Recession Increasingly Likely as Cost of Living Soars
The World Economic Forum’s Community of Chief Economists expect reduced growth, stubbornly high inflation and real wages to continue falling for the remainder of 2022 and 2023, with seven out of 10 considering a global recession to be at least somewhat likely. These are the key findings of the Forum’s quarterly Chief Economists Outlook, published today.
Prospects for the global economy have deteriorated further since the May 2022 edition of this report, with expectations for growth pared back across all regions. Almost nine out of 10 of the chief economists expect growth in Europe to be weak in 2023, while moderate growth is expected in the Middle East and North Africa (MENA) region, the US, South Asia and Latin America.
The grim outlook for growth is being driven in part by high inflation, which has triggered sharp monetary tightening across many economies. With the exception of China and the MENA region, most of the chief economists surveyed expect high inflation to persist for the remainder of 2022, with expectations somewhat moderating in 2023.
The cost of living crisis bites
As the high cost of living reverberates around the world, the chief economists are in agreement that wages will fail to keep pace with surging prices in 2022 and 2023, with nine in 10 expecting real wages to decline in low-income economies during that period, alongside 80% in high-income economies. With household purchasing power weakening, the majority of the chief economists expect poverty levels across low-income countries to increase, compared with 60% in high-income countries.
“Growing inequality between and within countries is the ongoing legacy of COVID, war and uncoordinated policy action. With inflation soaring and real wages falling, the global cost of living crisis is hitting the most vulnerable hardest. As policymakers aim to control inflation while minimizing the impact on growth, they will need to ensure specific support to those who need it most. The stakes could not be higher,” says Saadia Zahidi, Managing Director at the World Economic Forum.
The cost of living crisis is driving concerns around energy and food prices. The chief economists are particularly concerned in relation to sub-Saharan Africa and the MENA region, with 100% and 63% of respondents, respectively, expecting food insecurity, with a significant number of respondents also expecting food insecurity in South Asia and Central Asia (47%, both). Most concerningly, 79% of the respondents expect rising costs to trigger social unrest in low-income countries versus 20% in high-income economies.
Debt dynamics deteriorate
The chief economists almost unanimously agree that the risk of sovereign debt default in lower-income economies is increasing. This is in contrast with high-income economies where one in four flagged debt default as an increasing factor in 2022. But as interest rates continue to rise, 42% of respondents expect debt servicing costs to exert a significant drag on growth over the next three years versus 84% for low-income economies. In this context, about one-third of respondents said that high-income countries no longer have the fiscal space to deal with another macroeconomic shock, compared with three-quarters for low-income countries.
Global fragmentation deepens
Geopolitics is expected to dominate macroeconomic and financial developments in the years ahead, according to those surveyed. Almost nine out of 10 expect heightened geopolitical risk to have a significant impact on global economic activity over the next three years, and only slightly fewer (85%) expect business strategies to be similarly affected.
A significant proportion of the respondents (69%) also expect to see geopolitical tensions affect global financial markets over the three-year horizon. Most respondents expect fragmentation to increase, especially in technology (80% of respondents) and goods (70%), with a more moderate outlook for labour (60%), services (58%) and finance (52%).
Most of the chief economists expect businesses to take decisive action in response to global developments: 80% expect businesses to adapt their supply chains to geopolitical developments. Four out of five chief economists expect businesses to pursue supply chain diversification and localization (also 80%) over the next three years, with long-term implications for costs to consumers.
Expansion of Social Protection Programs Necessary for a Resilient Recovery
Universal Social Protection is critical to effectively protect people against poverty, prevent risks to their livelihoods and well-being, and help them access economic opportunities. Achieving this goal will require social protection systems that are stronger, more resilient and better funded, according to a new World Bank report. While the pandemic, food and fuel price inflation, and longer-term challenges such as climate change make social protection critically important, they also threaten countries’ ability to raise spending and expand the social protection programs necessary for more resilient systems.
The new report, “Charting a Course Towards Universal Social Protection – Resilience, Equity, and Opportunity for All,” sets out a vision for achieving universal social protection. It underscores the need for countries to build integrated social protection systems that are underpinned by an increase in national spending to help expand social protection coverage, including to informal workers. To generate additional fiscal space, governments will need to reduce inefficient spending and mobilize more domestic revenues alongside continued international support.
“Social protection aims to promote investments in people and access to productive work, resilience to shocks and equality of opportunity,” said Mamta Murthi, World Bank Vice President for Human Development. “To reach universal social protection, governments will need to integrate services, such as social insurance, social assistance, and economic inclusion programs, ensuring all people are effectively protected throughout their lifecycle and across income levels.”
The report identifies five priorities for the World Bank to help developing countries further accelerate progress towards universal social protection. Climate change considerations and empowerment of women and girls are at the heart of these efforts. The five areas include:
- Building strong foundational social protection systems.
- Increasing coverage for social protection programs and promoting greater inclusion.
- Building more resilient, adaptive, and dynamic programming.
- Scaling up effective economic inclusion and labor systems.
- Creating more fiscal space for universal social protection.
“In response to the multiple crises facing low- and middle- income countries, the World Bank is providing unprecedented support to help governments expand and improve social protection systems,” said Michal Rutkowski, Global Director for Social Protection and Jobs at the World Bank. “This new report provides a vision towards the inclusive adoption of universal social protection to ensure that all people, including the poorest and most vulnerable populations, have the support they need and that no individuals or groups are left behind.”
Strengthening social protection systems is central to the World Bank’s mission to reduce poverty and promote shared prosperity. The COVID-19 pandemic proved to be a major catalyst for global efforts to scale up social protection systems. Between April 2020 and June 2022, the World Bank doubled its pre-COVID-19 social protection portfolio and provided more than $14 billion to 60 countries, including 16 countries affected by fragility and conflict, reaching more than one billion people worldwide. As of September 2022, the World Bank is providing $30 billion in financing to countries across regions and income levels. This includes $17 billion through IDA, the Bank’s fund for the world’s poorest countries.
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