IMF Projects 10.4% Contraction in Global Trade, Difficult Economic Recovery

Ndubuisi Francis in Abuja

The International Monetary Fund (IMF) has projected a 10.4 per cent contraction in global trade as well as a global economic growth rate of -4.4 per cent in 2020.

In the just-released biannual World Economic Outlook (WEO) report, the IMF also revealed that foreign direct investment flows as a share of global gross domestic product are well below their pre-pandemic levels, and are expected to remain as such in the near future.

The IMF report titled: ‘World Economic Outlook 2020: A Long and Difficult Ascent’, highlighted the importance of climate action and the role that the multilateral system must play to defuse trade and technology tensions, which can enable countries to meet their emissions goals and climate change.

According to the WEO, the Fund expects “a long and difficult ascent” from the COVID-19-induced global recession, citing the United Nations Conference on Trade and Development’s (UNCTAD) updated data on trade and investment trends.

The report stated that although projections are less severe than forecast in the June 2020 WEO update, the global economy recovery will be uneven and remains uncertain, adding that whereas some regions are returning to growth more rapidly than anticipated, economic prospects in several emerging markets continue to worsen as COVID-19 infections rise.

While reviewing global prospects, and highlighting that the recovery is prone to setbacks, the report added that global trade began recovering in June as lockdowns were eased, although the return to growth was driven by China.

Overall, the report projected a 10.4 per cent contraction this year.

Similarly, a UNCTAD Global Trade update projected a 9 per cent fall in global trade, noting that the figure is subject to continued uncertainty.

UNCTAD found that in the third quarter of 2020, exports decreased in nearly every country except a select few in Eastern Asia.

However, it observed that if the economic impacts were primarily driven by government-imposed restrictions, then a quick economic recovery might be expected.

The WEO estimateed the rate of global economic growth at -4.4 per cent for 2020, followed by 5.2 per cent in 2021-less severe than the 2020 forecast in June, but also a lower recovery rate for the coming year.

It postulated that these subdued figures may reflect the possibility of producers seeking to “re-shore production” in order to reduce reliance on foreign producers.

Indeed, the WEO data revealed that foreign direct investment (FDI) flows as a share of global gross domestic product (GDP) are well below their pre-pandemic levels, and are expected to remain as such. The latest UNCTAD Investment Trends Monitor briefing appears to align, showing that global FDI flows in the first half of 2020 were down 49 per cent relative to 2019.

While the WEO focuses on trade in goods or overall global trade, it also flags lower cross-border travel prospects, showing a year-on-year reduction since 2019 in the percent of GDP comprised by travel and passenger transportation in five countries.

The report noted that the outlook for tourism-dependent economies is “particularly bleak.”

A quarterly UNCTAD bulletin that tracks international trade in services shows a sharp downturn in global services exports, which are down 28.5 per cent relative to the previous year’s second quarter numbers. UNCTAD found the decline as being steeper than that of the 2009 financial crisis, although not uniform by sector.

Travel was down 81.4 per cent year-on-year, whereas transport shows a 30.1 per cent decrease.