What Can We Expect from the Global Trade in 2021?
The world hopes to recover from the negative impacts of the pandemic in 2021. The expectations have reached the top after a year of struggle to keep the pandemic under control. The global trade, which has largely gone into recession with the borders shutting down, is showing signs of recovery.
In this sense, the increase in the Baltic Dry Index, which indicates the dry cargo transportation costs, stands out. Widely considered as a major indicator of the global trade volume, an increase in the Baltic Dry Index points out a positive trajectory. Dropped to the level of 500 with the impact of the pandemic, the index has increased as much as a thousand and eight hundred in January.
With that being said, the expected recovery might be effective in the short-term.
An evaluation of the last quarter of 2020 in the global trade
The Organization for Economic Co-operation and Development (OECD) has published the fourth-quarter data of the G20 countries. According to the report, the global commodity trade has recovered in the fourth quarter, after the sharp falls observed in the first quarter of 2020. In Turkey, exports have increased by 9.5 per cent, while imports have jumped by 5.4 per cent. China was the leading force of the growth, increasing the traded goods of G20 countries. Moreover, in the Asia-Pacific region, strong commercial growth was recorded in Australia and Japan. The United Kingdom has recorded double-digit growth in the fourth quarter of 2020 both in exports (10 per cent) and imports (16 per cent). We are realizing the impact of Brexit on this strong growth.
When we look at the Global Trade report published by the United Nations Conference on Trade and Development (UNCTAD), we can argue that the developing countries influenced the recovery in the last quarter of 2020. Stating that the pandemic has changed the competitive balance in the global markets, the report mentions that, while some economies have managed to increase their market share, the others have not. Within this context, countries such as Turkey, China, Switzerland, Uganda, and Vietnam have put relatively better exportation performance in 2020. On the other hand, countries such as Columbia, Nigeria, Saudi Arabia, and Venezuela have performed worse in this area.
UNCTAD Global Trade report expects a recovery in the goods and services industries in the first quarter of 2021 but predicts a slower pace in comparison to the fourth quarter of the past year.
Major trade agreements signed last year to have a positive impact on global trade in 2021
The Regional Comprehensive Economic Partnership (RCEP) agreement between the Asia-Pacific countries was one of the most important trade agreements of 2020. Signed between 15 countries, the partnership agreement implicates 2.2 billion people. Moreover, it makes up 30 per cent of the global GDP with a volume of 26.2 trillion dollars. As the RCEP agreement enters into force under the leadership of China, a new era is expected to begin in the commercial relations between the USA and Asia.
The African Continental Free Trade Area (AfCFTA) signed between 54 countries in Africa implicates 1.3 billion people. With this agreement, which is estimated to reach 3.4 trillion dollars in value, a significant portion of the poverty in Africa is expected to be eliminated.
After completing a controversial Brexit process, the UK signed a free trade agreement (FTA) with 63 countries. Turkey is among the countries that signed the agreement. The UK may have left the EU, but 46 per cent of her exports still flow to EU-member states. The agreement with the EU involves the conditions of zero quotas and zero tariffs. In other words, the UK will be able to export to EU-member states without being subject to any tariff or quota.
With Trump leaving the Office, moderate policy expectations between the US and China strengthen
The trade wars between the US and China escalated during the Trump administration may settle down with the business partnerships of this year. The expectation from the new Biden administration is to follow a multi-faceted trade policy.
The Phase 1 agreement guarantees that China will buy 300 billion dollars’ worth of products from the US. While it is clear that the intense approach towards China will continue, it is also possible that the Phase 2 agreement may be realized in consideration of the current policies. Even if the Phase 2 agreement was concluded, the tension between the technology giants would continue to influence the relationships between these two countries.
What do International Organizations expect from global trade in 2021?
In the report published in October 2020, the World Trade Organization (WTO) has stated that it expects a 7.2 per cent global growth in the commodity trade volume in 2021. However, the report also mentions that the expected growth will not completely set off the past year’s recession caused by the pandemic.
In the World Economic Outlook Report published in January 2021, the International Monetary Fund (IMF) has predicted a growth in the global trade volume. According to the report, it is expected that global trade will grow by 8 per cent in 2021 and continue to grow 6 per cent in 2022. However, the report emphasizes that the recovery in the services industry will be slower compared to other sectors. It is expected that the negative trajectory in the services industry will continue unless the travel restrictions are lifted.
According to the Global Economic Expectations report published by the World Bank in January 2021, it is predicted that the global GDP will grow 4 per cent in 2021, and 3.8 per cent in 2022. The World Bank’s report highlights three different scenarios. In the base scenario, an approximate average of 5.1 growth is expected in the global trade between 2021 and 2022. In the optimistic scenario, the expectation for global trade is laid out as an approximate average of 7 per cent between 2021 and 2022.
The pessimistic scenario has been envisioned by considering the possibility of an increased rate of virus spread, or potential delays in the supply of the vaccine. It is emphasized that, in the event of such developments, trade may be able to recover, but, as the financial stress builds up, the growth rate will significantly stagnate. Under the pessimistic scenario, 2021 may see a recession, even after the events of 2020. In that case, we will have to wait until 2021 for a moderate recovery.