File Photo: The Organization for Economic Cooperation(OECD) logo. AP
The COVID-19 pandemic caused international trade to contract by 8.5 percent in 2020, marking some of the deepest reductions since the end of WWII, according to the Organisation for Economic and Co-operation Development (OECD).
In its policy paper, released on Thursday, on the impact of the pandemic on the directions and structure of international trade in 2020 amid the pandemic, OECD said that the crisis also led to a highly heterogeneous, impacts on both the demand and supply sides of domestic economies and on international commerce.
“Over the course of 2020, international trade was subject to compound pressures as demand and supply of goods and services changed sharply. Trade also faced direct headwinds in the form of new restrictions and costs stemming from temporary border closures, restrictions on passenger travel and disruptions in transport sectors. Impacts on trade in 2020 were large and heterogeneous across regions, countries, products and periods. In some cases, they also revealed hitherto undetected bottlenecks and vulnerabilities. These took the form of problems with both sourcing materials, parts and components and other manufactured products and with unexpectedly large inventories as demand fell,” the paper illustrated.
Yet, the paper pointed out that disruptions to the international merchandise trade witnessed in 2020 occurred in the context of already sluggish trade growth.
In this respect, the paper noted that the growth in the global goods trade slowed down at the end of 2018 and became negative in 2019 owing to the growing economic policy uncertainty, increasing trade policy tensions and the continuing deceleration in the expansion of international supply chains.
“The declines in both world industrial production and goods trade in the first half of 2020 were of similar depth to those at the trough of the great financial crisis (GFC) occurred in 2008-2009,” said the paper.
Nevertheless, international trade experienced a V-shaped recovery in 2020, as recovery in the second half of the year was particularly rapid and was due to the combined effects of a reduction in backlogs in supply chains and logistics and of a freeing up of the contracted demand for durable goods accumulated during the lockdowns of the first half of 2020.
“As a result, the annual 5.3 percent decline in the volume of international merchandise trade and the 4.3 percent contraction in the volume of world industrial production accumulated over the course of 2020 compare favourably to the declines of 12.8 percent and 7.6 percent respectively recorded at the trough of the GFC in 2009,” according to the paper.
Meanwhile, OECD data included in the paper showed that in contrast to goods, services trade was hit harder in 2020 than during the GFC.
According to the paper, The value of exports of services in OECD countries declined in 2020 by 16.7 percent, twice as much as the value of goods exports (-8.2 percent).
The paper attributed that mostly to the decline in trade in travel and transport services, which both are the two major categories of internationally traded services and those which suffered the most from the COVID-19 restrictions on international travel.
Recovery in services trade in 2020 and early 2021 has also been much slower to date, the paper highlighted.