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Insights into Editorial: Trade in tatters: On the global slump



Global slump: Decline in Trade all over the world:

As IMF Managing Director observed, the global economy is set to contract sharply in 2020, with “the lockdown needed to fight” the pandemic affecting billions worldwide.

The only certainty right now in a pandemic-gripped world is the all-enveloping uncertainty.

And the WTO acknowledged as much when it released its outlook for global trade last week.

The WTO expects all regions, save Africa, West Asia and the Commonwealth of Independent States, to suffer double-digit declines in exports and imports this year even under its “optimistic scenario”, which postulates a recovery starting in the second half.

Projecting merchandise trade to plummet by anywhere between 13% and 32% in 2020, it added a categoric caveat: at the moment, it is only able to posit a wide range of possible trajectories for the predicted decline in trade given the unprecedented nature of the health crisis caused by the COVID-19 outbreak and the uncertainty around its precise economic impact.

Economists at the WTO, however, appear more certain that the disruption and resultant blow to trade will in all likelihood be far worse than the slump brought on by the global financial crisis of 2008.

The tight restrictions on movement and social distancing norms across geographies have led to severe curbs on labour supply, transport and travel and the shuttering of whole sectors from hotels and non-essential retail to tourism and significant parts of manufacturing.

How does this compare to the 2008 global financial crisis?

It is comparable in terms of global growth impact over the year.

However, this recession operates at an elevated speed, being twice as fast as the economic downturn brought on by the 2008 financial crisis. Furthermore, the growth shock impact for the quarter is at least twice as strong compared to the Great Financial Crisis.

The time axis adds an additional element of uncertainty. Where previous crises have come as a sudden shock, the COVID-19 pandemic is a slowly growing and evolving shock to the global system, making it all the harder to evaluate scenarios.

We’re months away from even starting on the road to recovery and, at this time, we expect the macro and market impact to last about two quarters, possibly three.

Global trade will plunge by up to a third in 2020 amid pandemic: WTO:

  1. The WTO and the IMF chief have pointed to the fact that unlike the recession that accompanied the global financial crisis just over a decade ago, the current downturn is unique.
  2. Global supply chains have increased in complexity, especially in industries such as electronics and automotive products, making them particularly vulnerable to the current disruptions, with countries that are a part of these value linkages set to find trade more severely impacted.
  3. Global trade growth is expected to plummet by up to a third in 2020 due to the coronavirus pandemic, the World Trade Organisation, warning that the numbers would be “ugly“.
  4. “World trade is expected to fall by between 13% and 32% in 2020 as the COVID-19 pandemic disrupts normal economic activity and life around the world.
  5. There were a wide range of possibilities for how trade would be hit by the “unprecedented” health crisis.
  6. Also, services trade in which India has a higher global share as an exporter ($214 billion, or 3.5%, in 2019) than in merchandise exports may be significantly affected by the transport and travel curbs.
  7. A small sliver of silver in this bleak outlook for services trade is the role that the WTO sees for information technology services as companies try to enable employees to work from home and people order essentials and drugs online and socialise remotely.
  8. India’s IT exporters have been busy supporting their overseas clients’ business continuity plans in the face of the pandemic and may find this hand-holding at a time of dire need earning them loyalty-linked business when economic activity revives.
  9. Still, as the WTO chief, crucially observes, a rebound in global economic activity will require trade to flow freely across borders as vitally as any fiscal or monetary stimulus.
  10. The world will be best served if nations do not turn insular and erect new barriers to the movement of goods, services and people in the aftermath of the pandemic.

Both the organised and informal sectors of the economy could see heavy attrition of employees and workers.

Major employment generating sectors such as construction, real estate, hospitality, tourism have cut down on their services leading to unemployment.

The worst hit are the small firms and their employees. Many migrant workers were seen thronging railway stations to go back to their home towns as they face job losses.

Even in the organised sector, while the government has issued advisory to enterprises not to cut salaries and lay-off workers, given difficult conditions they may have to lay-off their employees.

Steps to be taken in way forward:

  1. In the harvest season, farmers need logistical support for moving their produce to markets.
  2. Lenders, including NBFCs, should be granted freedom to reschedule their loan accounts so that borrowers are not under pressure to repay for fear of turning delinquent.
  3. A credit guarantee fund that will support non-delinquent borrowers for the next six months will be a good option. Such a fund can be financed through a domestic bond offering.
  4. The bankruptcy code should be suspended for the next six months, at least for MSMEs.
  5. And why not a GST holiday for the next three months? The loss of revenue will be ₹3-lakh crore at worst, but in reality will be much lower than that because economic activity is at a standstill now.
  6. Such a move will ease cash flows for business and also obviate the need for statutory compliances at a time when the focus will have to be on getting businesses back on track.
  7. The crisis now is without precedent and the solutions cannot be conservative. Generous support from the government, and quickly delivered, is the need of the hour.covid_19_1


The global disruption caused by the current crisis needs global support on both monetary and fiscal front. This may require a major comeback of the roles of the public authorities, the scope of sovereign powers and the call for better regulations.

Within India too, there could be a trend towards discrimination, with ‘social distancing’ producing undesirable social practices.

The more the virus persists, the deeper such practices would get. We already know what these practices feel like; it can only get worse from here.

Also, as the WTO observes, a rebound in global economic activity will require trade to flow freely across borders as vitally as any fiscal or monetary stimulus.

In this context, the world will be best served if nations do not turn inwards and install new barriers to the movement of goods, services and people in the aftermath of the pandemic.