Services trade recovery to extend into Q3—WTO

Services trade recovery to extend into Q3—WTO

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  • The Services Trade Barometer index has risen above the baseline value of 100, suggesting the continued recovery in the volume of services trade in the second and third quarters
  • However, expansion could proceed along a new, lower trajectory if the impact of the COVID-19 pandemic becomes prolonged

The recovery in global services trade looks set to extend into the third quarter of 2021 but could proceed more slowly if the impact of the COVID-19 pandemic turns out to be long-lasting, the World Trade Organization (WTO) said.

The WTO’s Services Trade Barometer released on September 23 indicates a reading of 102.5, which is above the global services trade activity index and above the baseline value of 100, suggesting that the volume of services trade in the second and third quarters—for which official statistics are not yet available—will continue to recover.

However, the fact that the indicator has recently turned downwards suggests that the expansion may proceed along a new, lower trajectory if the COVID-19 pandemic turns out to have a persistent impact on services trade.

In the first quarter of 2021, world services trade was down 13.9% year-on-year, according to the global services activity index.

Services trade fell sharply in the early stages of the pandemic but, in contrast to goods trade, it has only staged a partial recovery since then, noted WTO. The recent performance of services trade differs from the financial crisis of 2008-09, when services trade was more resilient than goods trade.

The difference is largely because the pandemic continues to weigh on travel and tourism. Year-on-year growth of services trade should turn strongly positive in the second quarter, mostly due to a lower base in the previous year.

Most component indices are on or above trend, but the overall picture is mixed.

  • The global services Purchasing Managers’ Index (102.7) and financial services index (100.2) have turned down after peaking but remain above trend, suggesting an easing of the pace of recovery in services.
  • The index of information and communications technology services (100.0) has climbed back to trend.
  • The index for passenger air transport (105.6) has rebounded recently but appears to be stabilizing below pre-pandemic levels.
  • Growth in the container shipping index (106.8) has eased although throughput has hit a record high. The recent surge in shipping costs appears to be more due to strong demand for traded goods than to supply constraints.
  • Construction is the only component to have dipped below trend recently (97.4).

Unlike its counterpart for goods, fluctuations in the Services Trade Barometer tend to coincide with movements in actual trade flows rather than anticipating them. Readings of 100 indicate growth in line with medium-term trends. Readings greater than 100 suggest above-trend growth while those below 100 indicate the opposite.

Image from WTO

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