World merchandise trade appears to have rebounded strongly after plummeting in the midst of the COVID-19 pandemic, but whether growth can be sustained going forward is unclear, according to the WTO’s latest Goods Trade Barometer released on 20 November. A sharp rise in the barometer index was driven by a surge in export orders, but mixed readings in other components and the resurgence of COVID-19 could weigh on trade in the coming months.
The Goods Trade Barometer’s current reading of 100.7 marks a dramatic improvement from the 84.5 recorded last August, which reflected collapsing trade and output in the second quarter as lockdowns and travel restrictions were employed to fight the virus. The latest reading indicates a strong rebound in trade in the third quarter as lockdowns were eased, but growth is likely to slow in the fourth quarter as pent-up demand is exhausted and inventory restocking is completed.
Trade-related uncertainty remains high. A second wave of COVID-19 infection is already under way in Europe and North America, leading to renewed lockdowns that could trigger another round of business closures and financial distress. On a more positive note, progress has been reported in the development of a vaccine, but when and how it might be deployed is not yet known.
The Goods Trade Barometer is designed to gauge momentum and identify turning points in world trade growth in real time. Readings of 100 indicate expansion in line with medium-term trends; readings greater than 100 suggest above-trend growth, while those below 100 indicate below-trend growth.
All of the barometer’s component indices were rising in the latest months, with some climbing above their medium-run trends while others remained depressed. The recovery in the overall barometer index was driven by export orders (113.5) and agricultural raw materials (103.6), both of which finished firmly above trend. The indices for container shipping (102.0) and automotive products (94.6) also recovered substantially to near trend, while those for air freight (88.5) and electronic components (94.6) remained below trend.
The latest reading of the Goods Trade Barometer is consistent with the WTO’s revised trade forecast of 6 October 2020, which predicted a 9.2% decline in the volume of world merchandise trade in 2020. This outcome would require a sharp rebound in the third quarter following the 17.2% year-on-year decline registered in the second quarter.
Normally the Goods Trade Barometer anticipates turning points in world trade by a few months, but new sources of uncertainty related to the COVID-19 pandemic may have reduced the predictive value of its component indices. Under these circumstances, higher-frequency (i.e. daily or weekly) statistics may provide additional signals of economic activity and trade to complement the standard set of indicators. These indicators point to a stalled recovery of international flights and container shipping in October, but improved economic sentiment as reflected by copper futures and press reports (see below).
The full Goods Trade Barometer is available here.
Further details on the methodology are contained in the technical note here.
The trade barometers provide a preview of trends in WTO trade statistics, which can be downloaded at data.wto.org. Forthcoming releases include merchandise and commercial services trade values on November 27, 2020 and merchandise trade volumes in mid-December.
Additional context for the Goods Trade Barometer
The following charts are provided to help readers better understand the current economic context.
Chart 1 shows the number of international flights per day recorded by the OpenSky Network since the start of 2020, including both passenger and cargo flights. Flights fell nearly 80% between late February and mid-April, but then returned to around 50% of their level at the start of the year by mid-August. Since then, total flights have stagnated and intra-EU flights have fallen, dropping around 30% between 20 September and 31 October reflecting the recent resurgence of COVID-19 in Europe.
Chart 2 shows the number of daily port calls of container ships since the beginning of 2020 recorded by the Automatic Identification System (AIS) developed by the International Maritime Organization. AIS port calls fell in February when COVID-19 already strongly hit China before rebounding in March. A more prolonged slump was recorded in April and May as countries around the world imposed lockdowns in response to the now global pandemic. Port calls returned to their level at the start of the year by the end of July but have since stagnated. Although they remain stable, they at least show no signs of a new downturn as of October 14, 2020.
Prices of futures contracts for copper are a widely recognized leading indicator of economic activity due to the importance of this metal in many areas of manufacturing. Standardized contracts are traded on the COMEX exchange, a division of the Chicago Mercantile Exchange (CME). Copper futures prices fell 24 % between 15 February and 20 March but have risen continuously since, climbing 44 % up to 10 November, including a 10 % jump since the beginning of October. This would suggest a high degree of economic confidence despite the recent resurgence of COVID-19.
The chart shows the daily volume and average tone of news reports containing the phrase “economic activity”, as monitored by the GDELT Project. The tone index fell sharply as press coverage became more negative between January and March, then rose gradually between April and September as the incidence of COVID-19 declined in major economies. The tone of press reports turned more negative in October as cases surged in Europe and North America, with an uptick registered following the announcement of an effective coronavirus vaccine on 9 November. The volume index moved in the opposite direction, rising in late October as COVID-19 surged, then dipping after the vaccine announcement.