WTO barometer signals short-term rebound for global services trade

WTO barometer signals short-term rebound for global services trade

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  • The latest reading has risen sharply to 104.7, the strongest on record for the series
  • Prospects for Q1 2021 and beyond uncertain amid continued weakness in some sectors, uneven distribution of vaccines, and appearance of new Covid-19 variants
  • Air transport showed persistent weakness while the ICT index dipped
  • Strong performers were global services PMI, container shipping, construction, and financial services

World services trade appears to be in a recovery phase following its sharp fall during the COVID-19 pandemic, but the uptick may not hold for long, according to the World Trade Organization’s (WTO) Services Trade Barometer.

The latest barometer reading has risen sharply to 104.7, the strongest on record (in a series going back to 2000) and above the baseline value of 100 for the index that denotes growth. It is also well above the low point of 91.2 for March 2020, at the peak of lockdown measures associated with the pandemic.

This suggests that world services trade growth accelerated in the fourth quarter of 2020 after bottoming out in the second quarter, said WTO in a March 11 analysis.

However, it noted that prospects for the first quarter of 2021 and beyond are uncertain due to the continued weakness in some sectors, the uneven distribution of vaccines around the world, and appearance of new Covid-19 variants.

“Momentum may not be sustained in the first quarter of 2021, however, as lockdown measures in response to the second wave of Covid-19 infections have continued to weigh on growth and employment in major economies since the start of the year,” said WTO.

The impact of the second wave is reflected in the barometer’s component indices.

Air transport showed persistent weakness (81.0) due to travel restrictions, and information and communications technology (ICT) index dipped (93.7) due to weakness in some computer services while telecom services remained steady.

International passenger flights, which will probably remain weak at least into the second quarter, could see a partial recovery in the third quarter if governments succeed in vaccinating large numbers of people against Covid-19, said WTO, although the spread of new variants could lead to new setbacks.

The dip in the ICT index may also turn out to be temporary, as it appears to have been driven by stricter lockdowns in the US weighing on some computer services, while telecom services have remained steady.

In contrast, other component indices have all risen above trend, including the global services Purchasing Managers’ Index (105.3), container shipping (104.3) and construction (106.3). The financial services index (119.9) had an especially strong showing, reflecting a rise in international financial transactions.

The Services Trade Barometer 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.

Photo by Jimmy Chan from Pexels

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