Global trade was more resilient during the pandemic than expected and will rebound strongly in 2021, according to the Dubai Multi Commodities Centre, though the recovery will be uneven and dependent on the roll out of vaccines and easing geopolitical tensions.
Feryal Ahmadi, chief operating officer at the DMCC, which presides over companies involved in the trade of commodities that range from pulses to diamonds, said fears global trade would collapse by 13 to 32 per cent last year “did not materialise”.
However, the future of global trade is dependent on the global vaccine drive and governments’ ability to respond quickly to new waves and variants of Covid-19, according to DMCC’s The Future of Trade report.
Also key to the outlook is the relationship between the US and China, expected to be the leading drivers of global economic growth this year, and the adoption of new technologies in ports and the shipping industry to facilitate the rise of e-commerce.
“It's estimated that global trade and goods dropped by just 5.3 per cent during 2020 and was supported in part by the unprecedented policy measures implemented by governments to shore up their economies, so we're actually seeing a much brighter picture than predicted,” Ms Ahmadi said.
“This is the start of the global economic recovery underpinned by trade growth, which is very positive.”
Global trade is expected to increase by 8 per cent this year, according to the World Trade Organisation, helping to drive economic growth of 5.6 per cent which is boosted by US President Joe Biden’s $1.9 trillion spending package. Trade growth of 4 per cent is expected in 2022.
Roberta Piermartini, chief of trade cost analysis at the WTO, said a comparison with the trade data seen after the global financial crisis demonstrates the resilience of the global economy during the pandemic.
“At that time, trade collapsed by about 10 per cent against a fall in [gross domestic product] of just 0.6 per cent,” said Ms Piermartini in a panel discussion hosted by the DMCC.
“What we observe now is a fall in GDP of 3.5 per cent – the biggest fall since the Second World War – and a much lower reduction on trade."
Ms Piermartini said the global economy has learnt from "what happened in the global financial crisis".
"The reaction in terms of fiscal stimulus has been fast and co-ordinated, but it has also been much more extensive – reaching an average of about 15 per cent of GDP, which is impressive," she added.
Ms Ahmadi said Dubai is an example of a destination where trade defied negative forecasts with volumes jumping 6 per cent in the second half of 2020. The emirate’s overall export values jumped 8 per cent in 2020, on an annual basis.
While a strong rebound was also recorded in the US, UK and China, Ms Ahmadi said prospects in developing nations are weaker against the backdrop of new waves of coronavirus.
Insufficient production and distribution of vaccines could lead to regional growth disparities, with the spread of vaccine-resistant strains of coronavirus potentially reducing global GDP by 1 per cent and removing up to 2 per cent from global goods trade growth this year, the DMCC said.
“Of course, there are still uncertainties for international trade ahead,” said Ms Ahmadi.
“The future of trade growth will depend largely on a successful and evenly distributed roll out of Covid-19 vaccines, as well as maximising supply chain efficiencies.”
Looking ahead, while global trade has shown its resilience, it is simultaneously in the midst of profound change, said Ahmed Bin Sulayem, executive chairman and chief executive of the DMCC.
“Technology, changing consumer behaviours, the drive to combat climate change, and geopolitics will all be key contributors to its reshaping in the years ahead,” he said.
Although tensions in the US-China trading relationship are not new, the extent to which the two nations can decouple their investment and trade relationship is still an area of concern, the DMCC said.
While a “new age of protectionism” is a key risk, outright protectionism will be kept at bay because it is costly, unpredictable, and affects jobs, the trade zone said, with economic nationalism more likely to occur.
To counter rising protectionism, the DMCC urges companies to take advantage of free trade zones for commercial trading contracts, while governments should adopt macroeconomic and financial tools to promote mutually beneficial trading relationships to avoid falling back on tariffs.
"International policy co-ordination to boost trade for the more vulnerable economies is critical," said Ms Ahmadi. "This is a topic that should be the focus of international forums, such as the G7 summit taking place in the UK."
Another key focus for the future of global trade is sustainability, with China, Japan, the US, South Korea and Canada among nations to have unveiled more aggressive net zero carbon emissions targets.
At the G7 Summit in Cornwall this week, UK Prime Minister Boris Johnson will urge members to commit to a new deal to help developing countries decarbonise their economies as he looks to lead ambitious global action on climate change.
While global efforts to ramp up climate change commitments are on track, the DMCC said the global energy transition away from fossil fuels requires investment in new technology and closer co-ordination with the private sector.
Technology can also have a “game-changing impact” on trade flows by realising efficiencies across supply chains after the pandemic shifted the acceleration towards e-commerce in the retail sector.
Mainstream businesses are now recognising the revolutionary potential of blockchain, the DMCC said, to boost efficiency and reduce costs with blockchain, decentralised finance (DeFi) and other disruptive technologies set to further accelerate trade growth.
“Since the start of 2021 alone, the total value locked into DeFi has tripled from approximately $20bn to $60bn," said DMCC.
"As digital infrastructures grow, they will continue to accelerate a ground-breaking shift in trade from the national to the global."
The resilience of global trade during the pandemic was partly due to high demand for medical goods and personal protective equipment, said Ms Piermartini.
Khatija Haque, head of research and chief economist at Emirates NBD, said the fiscal response from governments and the fact that people continued to be paid while they were stuck at home working or on furlough during lockdowns also helped to protect the trade industry.
With consumers in developed economies building up record levels of excess savings, they bought electronics, furniture and toys to entertain themselves.
"This is one of the reasons we saw such a sharp turnaround in the volume of global trade from the fourth quarter of last year, and particularly into Q1 2021,” said Ms Haque.
This will also fuel a much faster recovery for 2021 than the WTO expectation, she said.
“The volume of global trade in the first quarter of this year was up around 7 per cent, relative to the first quarter of last year, and that is only going to be even bigger when you go into Q2 because you're coming off a very low base,” Ms Haque said.