Page 464 - ES 2020-21_Volume-1-2 [28-01-21]

External Sector 91

3.1 COVID-19 has affected nearly all spheres of the global economy with the spread catalyzed
by the increasing interconnectedness of global value chains. The resulting crisis has constituted
an intense shock, with a sharp decline in global trade, lower commodity prices, tighter external
financing conditions and with varying implications for current account balances and currencies.
The global volume of goods trade in the first five months of 2020 was about 20 per cent lower than
in 2019—a more abrupt contraction than in the first five months of the global financial crisis.

GLOBAL ECONOMIC ENVIRONMENT

3.2 The spread of the pandemic led to associated suspension of economic activities, supply-chain
disruptions, travel restrictions and volatility in international commodity prices. As a result, there
was a wave of downward revisions to global output growth and trade volume.The contraction in
GDP has been much stronger in the current recession when compared to the fall in trade which
has been more moderate. World Trade Organization (WTO), in April 2020, predicted a fall in
world merchandise trade by 13-32 per cent in 2020. However, with easing of lockdowns and
acceleration in economic activity, a surge in trade was recorded in the months of June and July.
WTO, accordingly, revised its forecast in October 2020 to a decline of 9.2 per cent in the volume
of world merchandise trade in 2020, followed by a 7.2 per cent rise in 2021 (Figure 1). In the
October 2020 edition of the World Economic Outlook, the IMF expected a sharper fall in world
output of 4.4 per cent in 2020, but lower contraction in world trade volume of 10.4 per cent in
2020 as against 3.0 per cent and 11.0 per cent respectively predicted in April 2020 (Figure 1). In
advanced economies (AEs), the contraction for GDP as well as trade volume is projected to be
more severe than for the emerging markets and developing economies (EMDEs).

Figure 1:Trends in Growth of World Output and Trade Volume
World Output (IMF)
10 World Trade Volume in Goods and Services (IMF) 8.3 7.2 10
World Merchandise Trade Volume (WTO)-RHS
Annual Per cent Change 5 -4.4 4 Annual Per cent Change
8
6

2
0
0
-2
-5

-6
-10.4 -4
-10 -8
-9.2 -10
-15 -12
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: International Monetary Fund and World Trade Organization (WTO)
Note: Figures for 2020 and 2021 are projections indicated as shaded portion.
3.3 Global merchandise trade, as per data available from WTO, recorded its sharpest ever one-
period decline in Q2-2020. The WTO’s goods trade barometer index for the said quarter was
at 84.5 – the lowest on record since 2007 – i.e., 15.5 points below the baseline value of 100 for