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The services trade activity index of the World Trade Organization (WTO), which provides an approximate measure of the volume of world services trade, declined 4.3 per cent (year-on-year) in the first quarter of 2020 with passenger air transport taking the hardest hit owing to the Covid-19 pandemic, according to the latest reading from the WTO Services Trade Barometer.
Some signs of turnaround, however, have been shown by sectors such as container shipping, construction and the services Purchasing Managers’ Index (PMI).
“Services trade growth had been slowing in the second half of 2019, and the recent contraction in services trade reflects a weakening pace of global economic growth as well as the early stages of the Covid-19 pandemic. While the index is expected to remain below trend into the second half of the year, a recovery in passenger air transport would make a powerful contribution to a turnaround,” as per a statement put out by the WTO on Thursday.
The September 17 reading of 95.6 is the weakest on record for the index, and is significantly lower than its baseline value of 100. However, on the positive side, the barometer’s measures are in aggregate outperforming recent trends in actual services trade, a gap that in the past has preceded a positive shift in trade momentum, the statement said.
The decline in the index is also smaller than those seen during the financial crisis over a decade ago, when services trade fell by 5.1 per cent in the first quarter of 2009 compared to the previous year before registering an even bigger 8.9 per cent slump in the second quarter, the statement added.
Most of the barometer's component indices remain below trend but some show signs of bottoming out. Passenger air transport, at 49.2, posted the biggest decline ever recorded for any of the barometer’s components, reflecting the sharp drop in travel linked to Covid-19. “The contraction in this sector has been sufficiently large as to weigh on total global services trade, though it appears to have stabilised recently,” the statement said.
Signs of turning around
Indices representing container shipping at 92.4, construction at 97.3, and the global services Purchasing Managers' Index at 97 showed signs of turning around.
The ICT services index fell to 94.6 despite robust demand for such services during the pandemic. The financial services index at 100.3 was the only component index that remained on trend as of mid-September.
Readings greater than 100 in the index suggest above-trend growth while those below 100 indicate the opposite.
World trade in goods, too, have been posting record lows due to the effects of the on-going pandemic.
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