Exports may be muted as WTO warns of growth slowdown in global trade

In what could have an adverse impact on India’s exports, the World Trade Organization (WTO) has warned the growth rate in global merchandise trade is likely to slow down during October-December this year as several countries impose fresh lockdowns in light of the second wave of Covid-19.

“... growth in (global trade) is likely to slow in the fourth quarter (October-December, or Q4) as pent-up demand is exhausted and inventory restocking is completed,” the WTO said in its latest report.

It said trade-related uncertainty remains high. “A second wave of Covid-19 infection is already underway in Europe and North America, leading to renewed lockdowns that could trigger another round of business closures and financial distress.”

However, it noted that progress has been reported in the development of a vaccine, but when and how it might be deployed is not yet known.

Exports had recovered 5 per cent in September after months of contraction. However, that recovery turned out to be short-lived as exports again contracted — 5.12 per cent — in October year-on-year (YoY) due to the new spread of Covid-19 in countries that are India’s main trading partners.

Aditi Nayar, principal economist at ICRA, said, “We are apprehensive that contraction in exports seen in October may continue in the near term till the second wave of infections comes under control and restrictions are eased.”

However, a yardstick to gauge the global trade, called the Goods Trade Barometer, stands at 100.7. This marks a dramatic improvement from 84.5 recorded in August, which reflected collapsing trade and output in Q2 as lockdowns and travel restrictions were employed to fight the virus. The latest reading indicates a strong rebound in trade in Q3 (July-September 2020) as lockdowns were eased.

A reading of 100 indicates expansion in line with medium-term trends; a reading greater than 100 suggests above-trend growth, while that below 100 indicates below-trend growth.

The latest reading of the barometer is consistent with the WTO’s revised trade forecast given last month which predicted a 9.2 per cent decline in the volume of world trade in 2020. 

This outcome would require a sharp rebound in Q3 following the 17.2 per cent YoY decline registered in Q2 (April-June).

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