Free Trade Zones

Global trade set to rebound strongly in 2021 after showing resilience during pandemic

Global trade has been more resilient than expected during the pandemic and will rebound strongly in 2021, according to the Dubai Multi Commodities Center, although the recovery is uneven and dependent on the rollout of vaccines and the easing of geopolitical tensions.

Feryal Ahmadi, director of operations for DMCC, which chairs companies involved in the trade in commodities ranging from pulses to diamonds, said fears that global trade could collapse by 13-32% last year ” did not materialize “.

However, the future of global trade depends on the global vaccine campaign and the ability of governments to respond quickly to new waves and variants of Covid-19, according to DMCC’s The Future of Trade report.

Relations between the United States and China, which are expected to be the main engines of global economic growth this year, and the adoption of new technologies in ports and the shipping industry to facilitate the rise of e-commerce are also at the heart of perspectives.

“It is estimated that world trade and merchandise only declined by 5.3% in 2020 and was supported in part by the unprecedented policy measures implemented by governments to consolidate their economies, so we actually see a much brighter image than expected, ”Ms. Ahmadi said.

“This is the start of the global economic recovery supported by growth in trade, which is very positive.”

Global trade is expected to grow 8% this year, according to the World Trade Organization, helping to boost economic growth by 5.6%, boosted by US President Joe Biden’s $ 1.9 trillion spending envelope. Trade growth of 4% is expected in 2022.

Roberta Piermartini, head of trade cost analysis at the WTO, said a comparison with trade data seen after the global financial crisis demonstrates the resilience of the global economy during the pandemic.

“At that time, trade collapsed by about 10 percent against a decline of [gross domestic product] by only 0.6 percent, ”Piermartini said at a panel discussion hosted by DMCC.

“What we’re seeing now is a 3.5% drop in GDP – the biggest drop since World War II – and a much smaller reduction in trade.”

Ms Piermartini said the world economy had learned lessons from “what happened during the global financial crisis”.

“The response in terms of fiscal stimulus has been swift and coordinated, but it has also been much more extensive – averaging around 15 percent of GDP, which is impressive,” she added.

Ms Ahmadi said Dubai is an example of a destination where trade has defied negative forecasts with volumes up 6% in the second half of 2020. The overall value of the emirate’s exports jumped 8% in 2020, on an annual basis.

Of course, uncertainties remain for future international trade.

Feryal Ahmadi, DMCC

While a strong rebound has also been registered in the United States, United Kingdom and China, Ms Ahmadi said the outlook in developing countries is weaker amid new waves of coronavirus.

Insufficient vaccine production and distribution could lead to regional growth disparities, with the spread of vaccine-resistant coronavirus strains potentially reducing global GDP by 1% and suppressing up to 2% of global merchandise trade growth this year , said the DMCC.

“Of course, there are still uncertainties for the international trade to come,” Ms. Ahmadi said.

“The future of trade growth will largely depend on a successful and evenly distributed deployment of Covid-19 vaccines, as well as maximizing the efficiency of the supply chain. “

Ahmed Bin Sulayem, executive chairman and managing director of DMCC, said world trade was undergoing “profound change”. Courtesy: DMCC

Looking ahead, as global trade has shown its resilience, it is simultaneously at the heart of profound change, said Ahmed Bin Sulayem, Executive Chairman and CEO of DMCC.

“Technology, changing consumer behavior, the fight against climate change and geopolitics will all be key contributors to its overhaul in the years to come,” he said.

While tensions in the U.S.-China trade relationship are not new, the extent to which the two countries can decouple their investments and trade relations remains a matter of concern, the DMCC said.

While a “new age of protectionism” is a key risk, outright protectionism will be kept at bay because it is costly, unpredictable and affects jobs, the trade zone said, with economic nationalism more likely to occur. .

To counter rising protectionism, DMCC urges companies to take advantage of free trade zones for commercial contracts, while governments should adopt macroeconomic and financial tools to promote mutually beneficial trade relations to avoid falling back. on tariffs.

“The coordination of international policies to boost the trade of the most vulnerable economies is essential,” Ms. Ahmadi said. “This is a topic that should be at the center of international forums, such as the G7 summit taking place in the UK.”

Another key goal for the future of world trade is sustainability, with China, Japan, the United States, South Korea and Canada among the countries that have unveiled more aggressive net zero goals.

At the G7 summit in Cornwall this week, UK Prime Minister Boris Johnson will urge members to commit to a new deal to help developing countries decarbonize their economies as he seeks ambitious global action on the climate change.

While global efforts to scale up climate change commitments are on track, the DMCC said the global energy transition away from fossil fuels requires investments in new technologies and closer coordination with the private sector.

The technology may also have a “breakthrough impact” on trade flows by realizing efficiencies in supply chains after the pandemic shifts the acceleration towards e-commerce in the retail sector.

Mainstream businesses are now recognizing the revolutionary potential of blockchain, the DMCC said, to increase efficiency and reduce costs with blockchain, decentralized finance (DeFi) and other disruptive technologies intended to further accelerate the growth of the market. trade.

“Since the start of 2021 alone, the total value locked in DeFi has tripled from around $ 20 billion to $ 60 billion,” said DMCC.

“As digital infrastructures develop, they will continue to accelerate revolutionary change in commerce from national to global.”

Consumer demand for electronics, furniture and toys during the lockdown helped prop up global trade last year.  Bloomberg

Consumer demand for electronics, furniture and toys during the lockdown helped prop up global trade last year. Bloomberg

The resilience of global trade during the pandemic was in part due to high demand for medical products and personal protective equipment, Piermartini said.

Khatija Haque, head of research and chief economist at Emirates NBD, said governments’ tax response and the fact that people continue to be paid while stuck at home working or on leave during closures have also helped protect the industry from commerce.

As consumers in developed economies racked up record levels of excess savings, they purchased electronics, furniture and toys for entertainment.

“This is one of the reasons why we have seen such a sharp turnaround in global trade volume since the fourth quarter of last year, and in particular up to the first quarter of 2021,” said Ms. Haque.

It will also fuel a much faster recovery for 2021 than the WTO hoped, she said.

“The volume of world trade in the first quarter of this year has increased by about 7% compared to the first quarter of last year, and it will only be even more important when you enter the second quarter because you go out. from a very low base, ”Ms. Haque said.