Global trade expected to grow by 23% to $28 trillion in 2021, Unctad says

Global trade, which was battered by the coronavirus pandemic, hit a record high in the third quarter of 2021 and is expected to rise 23 per cent to reach $28 trillion for the full year, according to a report by the United Nations Conference on Trade and Development.

Trade growth remained strong during the year and stabilised in the second half, rising 24 per cent on an annual basis in the third quarter and significantly higher than pre-coronavirus levels.

However, the unevenness of the expansion, and potentially the emergence of a new coronavirus strain, serve as a backdrop for the uncertainty being forecast for 2022.

"The positive trend for international trade in 2021 is largely the result of the strong recovery in demand due to subsiding pandemic restrictions, economic stimulus packages and increases in commodity prices," Unctad said in its Global Trade Update released on Tuesday.

Global trade was anchored by goods trade, which rose 0.7 per cent quarter-on-quarter to set an all-time high of $5.6tn in the three months to the end of September. Unctad expects it to hit a record of $22tn this year.

Trade in services, while increasing 2.5 per cent year-on-year to about $1.5tn, remained muted. It is projected to reach $6tn this year, still slightly below pre-pandemic levels. Unctad's data, however, does not take into consideration the potential effects of Omicron, the newest strain of the coronavirus detected in South Africa last week.

While it remains to be seen what its effects would be, economists generally expect that vaccination programmes and the ability of countries to quickly adapt to restrictions will help the world weather any ill-effects, the Financial Times reported.

This could add to the uncertainty as 2022 approaches. The recovery in trade this year has been marked by large and unpredictable swings in demand, which have resulted in increased stress on supply chains, Unctad said.

Logistics disruptions and high fuel prices have added to increasing shipping costs and supply shortages. The backlogs across major supply chain hubs that have characterised most of 2021 could continue into 2022, Unctad said, adding that it would negatively affect trade and possibly reshape trade flows.

The strong economic recovery of the first half of 2021, however, slowed during the second, Unctad said.

China posted trade growth of 16 per cent in the third quarter, second only to Taiwan's 23 per cent. Vietnam, Brazil and Australia were the only others to post double-digit growth.

Trade in the UK, meanwhile, contracted 23 per cent. The US and EU shrunk 4 per cent and 3 per cent, respectively, while the rest of the world was down 3 per cent. The global average was 14 per cent.

Economic prospects and international trade flows could be negatively affected by rising commodity prices and inflationary pressures. Additionally, many economies, including those in the EU, continue to face coronavirus-related disruptions, which may hit consumer demand and ultimately be reflected in trade statistics in the coming quarters.

Trade weakness was also noticed in important sectors, most notably the automotive sector, because of semiconductor shortages. Since the onset of the pandemic, the semiconductor industry has been facing headwinds caused unanticipated surges in demand and persisting supply constraints.

This shortage has already disrupted many industries, notably the automotive sector. If persistent, this shortage could continue to negatively affect production and trade in many manufacturing sectors, Unctad added.

On a regional basis, the rebound in developing countries' trade continued to be strong. While the trend was driven by strong trade growth in East Asian developing economies in previous quarters, it has become broader across developing countries in the third quarter.

"Import and export trends for some of the world’s major trading economies further illustrate the recovery patterns of the third quarter. Overall, the trend of a stronger recovery for goods relative to services is common to all major economies," Unctad said.

Trade growth rates in the third quarter were very strong across all regions, although relatively muted in North America, Europe and East Asia, especially when compared to the third quarter of 2020. Export growth has been stronger in commodity-exporting regions as commodity prices have increased.

The third quarter witnessed strong trade in most sectors of the economy, with energy-related products leading the way, buoyed by high demand and an increase in the price of fossil fuels. Commodity sectors, including minerals and metals, as well as chemicals and road vehicles, posted above-average rates.

On the other hand, trade in some of the sectors related to the virus was more tepid. Trade in communication and office equipment was relatively low, as was the case in textiles and apparel because of lower demand for personal protective equipment. Trade related to the automotive sector was also below average, while the transport sector remained negative compared to 2019.