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v-shape

Rising shipping volumes and increased freight capacity point to a possible V-shaped recovery for global trade, according to a leading economics body.

The Covid-19 pandemic lead to a sharp decline in international activity, with governments around the world announcing lockdown restrictions to prevent the further spread of the virus.

The WTO said in June that merchandise trade had declined by 18.5% year-on-year in the first half of 2020 as a result.

Quick recovery

With lockdown measures lifted across western nations in the early summer, there are signs that global trade is on course for a quick recovery.

Germany’s Kiel Institute for the World Economy reckons trade will rebound more quickly than it did after the financial crisis in 2008, suggesting a V-shape rebound is possible.

Bloomberg quotes their president Gabriel Felbermayr arguing this week that shipping volumes are already back at levels it took over a year to recover to after 2008.

He also said freight capacity in late August was reaching levels you’d associate with a non-crisis environment, suggesting international shipping movements are normalising.

On Monday (31 August), IMF managing director Kristalina Georgieva also agreed that a “revival of trade” is under way.

Grounds for caution

Despite the optimism of the Kiel Institute, the WTO has argued that predictions of a complete rebound in 2021 could well be “overly optimistic”.

The WTO predicts global trade will contract by 13.5% in 2020 and fully recover by Q1 2021 in a best-case scenario. However, a weaker scenario would see a full recovery occur much later next year.

Worst still to come?

Euler Hermes, a trade credit insurance firm also from Germany, is more pessimistic in its outlook, predicting global trade volumes will contract by -15% with only a recovery of 8% in 2021.

The company predicts trade will not return to pre-crisis levels till after 2023.

In the UK, Prime Minister Boris Johnson has told Tory MPs that the UK’s economic health could also worsen in the months ahead, according to the FT.

Managing risk

All predictions about the speed of the global economic recovery from the pandemic currently come with the caveat of a possible second wave of the virus, particularly as cases increase again throughout European countries.

Euler Hermes’ chairman Wilfred Verstraete said “now is the time” for businesses and financial services providers to invest in technologies to better “understand and predict risk” in order to improve the management of future crises or waves of the current pandemic.

In a letter to the firm’s 66,0000 clients, Verstraete said 65% of business leaders had been affected by payment delays earlier in the summer with only 31% feeling prepared to deal with such incidents.