Services trade logs record 30% decline in Q2

Services trade logs record 30% decline in Q2

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  • Global services trade plunged to a new record low since its 17% contraction in Q2 2009
  • Declines were recorded across all regions and most sectors
  • International travel and transport were the hardest hit amid restrictions in passenger transport and decline in travel demand

Global services trade in the second quarter of 2020 plunged by a record 30% year-on-year, the steepest dive since it plummeted 17% in the second quarter of 2009, according to the latest data from the World Trade Organization (WTO).

Declines in services trade were recorded across all regions and most services sectors, particularly the travel sector, due to COVID-19 and associated restrictions. Only computer services grew, buoyed by a shift towards remote working and a rising demand for digitalization.

READ: World trade makes frail recovery but remains negative—UNCTAD report

Services exports in the second quarter of 2020 were down 32% in North America, 29% in Asia and 26% in Europe year-on-year. Preliminary estimates suggest even sharper declines for Latin America and the Caribbean (-46%) and a drop of 60% to 65% for least developed countries.

Tourism was particularly hard hit by the pandemic, as international travelers’ expenditure fell 81% and transport declined 31%. These two sectors make up 43% of services trade. The decrease in transport services trade is driven predominantly by restrictions to passenger transport and a fall in global demand for international travel.

Sectors requiring physical proximity also fell steeply, such as construction (-25%) and audio-visual, artistic and recreational services (-14%). Architectural and engineering services, closely linked with construction, and other business services were also down 11%.

Contract manufacturing services also collapsed (-22%), with factory production halting in many countries. Uncertainty about the economic context also had an impact on research and development (R&D) services, with exports from this sector declining 8% in the United States and 11% in the European Union.

Financial services was only marginally affected. Recent growth in this sector is even understated due to the dollar appreciation. For example, intra-EU trade in financial services rose by 2% in euro terms, while it stagnated in dollar terms.

Computer services, the fastest growing services sector in the last decade, was the only one to record an increase in exports, which was up 4% due to the rising demand for digitalization. This trend has been further accelerated by the pandemic.

Photo by Riku Lu on Unsplash

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