The Covid-19 pandemic has caused an earthquake to economies and particularly global trade with the after-effects set to continue for some time yet. With whole sectors shut and locked down, economies have taken a significant hit requiring Governments around the world to put in place measures to support businesses and apply a stimulus to national economies.
A Global Economic Shock
In last month’s update to the IMF World Economic Outlook, the global economic assessment, even in the optimistic outlook, painted a bleak picture. Gita Gopinath, the IMF’s Chief Economist stated that “this crisis is like no other. First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis”.
The IMF stated that the pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity. They assessed that the global economy is projected to contract sharply by -3 percent in 2020, much worse than during the 2008–09 financial crisis, and the worse since the 1930s depression era. In the IMF baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8 percent in 2021 as economic activity normalizes, helped by policy support. The risks for even more severe outcomes, however, are substantial. However, as we continue to face uncertainty, even this IMF assessment a few weeks later starts to look dated with the mood music beginning to change to note that even that forecast is looking optimistic.
Record Fall in Trade
If we now look more specifically at trade, this too paints an immediate bleak picture. In a report published by UNCTAD last week, the United Nations organization that tracks trade flows, the clear stand out headline from that was the forecast that global trade is to fall by a record 27 percent in the second quarter of the year. UNCTAD reported that the pandemic had hit the supply and demand for products across the world leading to a severe decline in world trade. Almost every category of goods is expected to suffer a fall in trade over the coming months.
Nearly Every Region to Experience a Double Digit Decline of Trade
The World Trade Organization’s forecast for world trade in 2020 assesses the decline to be between 13 to 32 percent. This large range in the forecast is substantial and relates to the level of uncertainty in place around the continued disruption caused by the virus and stalled economies due to the lockdown restrictions.
The WTO forecasts a decline for every region worldwide, with the majority set to experience a double digit fall in trade, with the exception of Africa and the Middle East which will whether this storm a little better with the decline expected to be in single figures.
What This Means for Governments
Governments worldwide have had to tear up their economic plans and rule books. Economic policies and measures have had to be rapidly developed to support the ‘stay at home’ message by implementing financial support measures to add liquidity into the economic and business systems, financial support to workers, increased social benefits, and support to national industries and sectors. ‘The great lockdown’ as the IMF’s Chief Economist Gita Gopinath coined it has effectively shut down national economies.
Governments will continue to implement and/or extend financial measures to continue to support their citizens, residents, and businesses for some time yet to come. Governments will also be mindful of the deficits being racked up, which in some cases is at unprecedented levels in this modern era, and whilst juggling the effects of the virus here and now, with how they emerge from this into a new normal - or more likely a series of new normals - and stimulate economic recovery.
Governments will be keen to support their companies with financial measures to reignite trade across borders, and activate support on the ground in markets through their networks of state trade promotion agencies to facilitate opportunities.
Last week the G20 Trade and Investment Ministers of the held a virtual meeting during which they endorsed a set of short to long term measures to support and facilitate global trade and investment. In the short term, G20 measures endorsed the expansion of the production capacity for medical equipment, promote the use of online services and e-commerce, and resume essential cross-border travel while safeguarding public health. Actions included removing trade barriers, facilitating trade, improving transparency, enhancing the operation of logistics networks, and supporting micro, small and medium-sized enterprises. The long term G20 measures discussed included the reform of the WTO “to improve its functioning and support the role of the multilateral trading system in promoting stability and predictability of international trade flows”.
What This Means for Businesses
Businesses leaders continue to face uncertainty over their plans for the immediate future, having to make decisions on navigating through this whilst operating differently – from employees working from home, to complying with easing restrictions which will still see their partial workforce split operating between home and work settings. With the disruption to supply chains, right the way through to disruption to the consumer base and spending, businesses are having a challenging period and will continue to do so for the rest of the year at least.
However, for some in some sectors relevant to this new normal, they are booming – think the healthcare and medical sectors, e-commerce and technology platforms, delivery services, to name a few.
With trade cargo logistics disrupted, but now more on the move, businesses can begin to move goods across borders but the challenge on their workforce and supply chains still remain.
The 2021 Recovery
As we look ahead to 2021, the majority of estimates are for a partial recovery to the global economy, but of course, this is wholly dependent on the duration of the continuing impact of this pandemic and search for a vaccine to counter it.
Governments worldwide are under severe pressure to ease the restrictions in place that were applied to control the virus and to restart their national economies. With those early countries experiencing the virus and taking actions to control it, and now seeing zero to low figures of the infection rate, they have been kick-starting their economies. Those countries have opened up their sectors such as manufacturing and others and have been resuming work, but with most far from operating at pre-covid levels.
Conclusion
The world is facing one of the most severe challenges in a generation reshaping how we have been, and are, living our lives, how we work, and socialize. In this world in transition to a new normal, we can expect more and more economies to begin to experience partial reopening as lockdown measures start to ease.
We can expect more government backed stimulus packages to be developed and rolled out to target the recovery phase but for many, this will also be coupled with radical changes to tackle inflating national deficits for several years to come.
Trade although facing a global decline, will remain one of the core elements to national economies and prioritized with support measures to reignite it, and in doing so help create and/or sustain jobs in the near future. A greater effort of global collaboration around enhancing the global trade flow will also continue to grow in focus and importance as lockdown measures ease.
For businesses, some will not survive, whilst others will whether this slightly better, albeit still challenged for some time to come. Those businesses that will emerge stronger out of this period will be those that have adapted quicker to the new normal, adjusting and recalibrating both business and communication strategies to the new ever-changing world, and reshaping their plans for the future. Our Manara Global strategic advisory team have been working hard to help business and communication leaders to do just that and guide them on to the path of success.
Now is the time for leadership, greater collaboration, innovation, and greater strategic communication efforts as we emerge into this world in transition caused by the covid era to identify, create, or seize opportunities in the mission to recovery and sustained success.
Robin Gordon-Farleigh is Founding Partner of Manara Global and a former communications strategist to two UK Prime Ministers