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November 3, 2021

Globalisation remains resilient through Covid

Guest blogger Dr David Skilling shows how globalisation held up through the collapse of international travel.
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In-house blogger
Guest blogger
Dr David Skilling
Founding Director
Landfall Strategy Group
All opinions expressed in this content are those of the contributor(s) and do not reflect the views of Macrobond Financial AB.
All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.

Global trade took a sharp hit shortly after the start of the global pandemic, but the big story is of the resilience of globalisation through Covid.

Monthly trade data from the CPB (Dutch Bureau for Economic Policy Analysis) show a steep contraction in world trade volumes in early 2020, followed by a sharp bounce back – exceeding 2019 levels by the end of the year. The recovery from Covid-19 was a lot quicker than the one following the global financial crisis, with emerging markets – notably China – playing a key role.

While trade volumes have softened in the past several months, this likely reflects supply chain disruptions around the world rather than underlying weaknesses in globalisation or the global economic recovery.

Indeed, the sharp rise in shipping costs shows the strength of demand for world trade; measured shipping container throughput continued to increase even as shipping costs have spiked.

Exports of goods throughout 2020 exceeded initial expectations. World merchandise trade shrank by just 5% in 2020 compared to initial forecasts of a 13-32% contraction by the World Trade Organisation(WTO). Both the WTO and the International Monetary Fund (IMF) predict solid export growth over the coming years.

However, there is variation across categories. Countries exporting semiconductors, electronics and pharmaceuticals, as well as some commodities, tended to perform better. This explains how smaller economies, which have large export shares of GDP, performed strongly through the pandemic.

Services, which account for about 25% of overall global exports, had a tougher time, however. The WTO estimates the value of commercial services exports fell by about 20% in 2020 from 2019, compared to an 8% reduction for the value of merchandise trade.

 Unsurprisingly, the collapse in international people movement was a major cause of the drop in exports of services. Economies most reliant on international tourism, such as Greece, Spain, Italy, New Zealand and Hong Kong, took the biggest hit. European countries that have eased travel restrictions are now recovering, with Greece reporting stronger tourist numbers now than in 2019.

We can see this multi-speed recovery by tracking international passenger movements through selected small economy hubs such as Amsterdam, Dubai, Singapore and Hong Kong.

As for foreign direct investment (FDI), flows fell markedly as a share of GDP in 2020 as the pandemic disrupted transactions. Some of this will be recovered through 2021 and beyond, and although FDI flows have likely peaked – reinforced by recent global corporate tax measures – the impact will mainly be felt in economies with large FDI shares such as Ireland, Switzerland and Benelux.

Taken together, globalisation remained resilient throughout the coronavirus pandemic, with the global export share slowing only marginally in 2020 after stalling for much of the past decade.

And the outlook remains reasonably positive despite supply chain disruptions. There will be some reconfiguration of global flows, with more regional patterns of production shaped by new technologies and regional trade architecture, as well as a growing commercial focus on resilience.

While US-China tensions will constrain trade, technology and investment flows – some governments are implementing protectionist measures – these will be offset by the ongoing push to liberalise trade and investment, notably in Asia.

The world economy will become more complicated to navigate, but countries exposed to global markets can expect to continue to prosper.

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