The global trade volume for goods and services is set to contract by about 12% in 2020, the International Monetary Fund (IMF) has remarked in its June 2020 World Economic Outlook (WEO) update.
The report noted that the global volume of goods trade in the first five months of 2020 was about 20% lower than that reported in 2019. The latest figures reflect a more abrupt contraction than that which was seen in the first five months of the global financial crisis in 2008.
The IMF added that crisis caused by the novel coronavirus (COVID-19) has caused a sharp contraction in global trade, particularly in services. It has also caused tighter external financing conditions in the early stage of the crisis, with implications for external positions varying widely across countries.
For 2020, the IMF forecasts imply a modest narrowing in current account surpluses and deficits by some 0.3 % of world GDP, although this is subject to high uncertainty. The outlook for current account balances remains highly uncertain, given the limited balance of payments data currently available for 2020.
Central channels affecting the evolution of current account balances in 2020 include the contraction in economic activity, and a tightening in global financial conditions. This is set to occur in addition to lower commodity prices, a contraction in tourism, and the decline in remittances.
The report offers a perspective on the latter three factors and reports the latest IMF staff forecasts for 2020–2021.
The fund showed that the immediate policy priorities are to provide critical relief and promote economic recovery. Once the pandemic abates, reducing the world’s external imbalances will require collective reform efforts by both excess surplus and deficit countries. New trade barriers will not be effective in reducing imbalances.
The IMF also mentioned that the tourism has been among the hardest hit sectors during the COVID-19 crisis, reflecting travel restrictions. However, discussions on measures for lifting restrictions are underway.
During the first four months of 2020, international tourism arrivals were about 50% lower than over the same period in 2019. There were commensurate deeper declines for related indicators, such as international flight arrivals and hotel reservations.
The projected direct impact on tourism trade balances in 2020 will depend critically on the pace of tourism recovery, which is highly uncertain.