WTO Says Rapid Government Response Cushioned Trade Downturn

(Bloomberg) -- The World Trade Organization tempered its pessimism about the outlook for cross-border commerce, saying its worst-case scenario for this year will likely be avoided but warning governments against becoming complacent to lingering economic risks.

The Geneva-based organization estimated that global trade in merchandise dropped 3% in the first quarter and fell 18.5% in the second, according to a revised trade projection published Tuesday on the WTO’s website.

The WTO’s previous outlook, released in early April, gave a wide range for the decline in goods trade this year -- with an optimistic scenario of a 13% contraction and a pessimistic scenario of a 32% drop that would mirror the collapse during the Great Depression.

While that forecast range stayed unchanged, the WTO report said the pessimistic case “appears less likely since it implied sharper declines in the first and second quarters.”

“There is an important silver lining here: it could have been much worse,” WTO Director-General Roberto Azevedo said in a statement. “Policy decisions have been critical in softening the ongoing blow to output and trade, and they will continue to play an important role in determining the pace of economic recovery.”

The WTO said global trade could see a 5% to 20% rebound next year, but that outcome remains far from certain, depending on whether there’s a second wave of Covid-19 outbreaks, weaker than expected economic growth or widespread recourse to trade restrictions.

“For output and trade to rebound strongly in 2021, fiscal, monetary, and trade policies will all need to keep pulling in the same direction,” Azevedo said.

Container shipping “staged a partial recovery” in June compared with May, the WTO said, and commercial flights, which fell 74% between Jan. 5 and April 18, have since rebounded by 58% through mid-June.

The WTO said most of the decline in output over the first two quarters has been concentrated in services industries -- such as hospitality, personal services and entertainment.

While car sales in China are rebounding from extreme lows -- up 5% year-on-year in May after falling 79% in February -- auto sales in western Europe and the U.S. were still down sharply in May, the WTO said.

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