- New Bank of England analysis looks at the impact of the COVID-19 pandemic on global trade.
- The analysis reveals 3 key trends in the pandemic’s impact.
- Services trade was affected more than goods trade, with a more than 20% drop in 2020.
The Covid pandemic has caused significant disruption to global trade. In 2020, global trade fell by 8.9%, the steepest drop since the global financial crisis.
Our analysis of Covid’s impact on global trade reveals three key trends.
First, the pandemic affected services trade more than goods trade. Services trade fell by more than 20% in 2020, almost four times the decline in goods trade (Chart A).
Covid restrictions can explain this difference. While restrictions curtailed the service sector, goods trade recovered fast as factory shutdowns were limited and there was a surge in demand for some durable goods (eg furniture, carpets and appliances).
Chart A: Services trade has fallen more sharply than goods trade
Sources: IMF World Economic Outlook April 2021 and Bank calculations. Data show global trade volumes.
During the Covid shock, world trade fell by less than during the global financial crisis in 2009, despite a significantly larger decline in global GDP in 2020. This is because services represent the majority of economic activity in advanced economies, but only around a quarter of global trade.
Second, the impact of the Covid shock on trade was different across countries. In particular, the fall in Chinese trade was much smaller than in other regions. The recovery of Chinese trade was especially strong, supported by robust global demand for goods and China’s ability to reopen its domestic supply chains ahead of other countries.
Finally, the pandemic has had a significant impact on shipping costs, which have increased by around 350% since May 2020 (Chart B).
Chart B: Shipping costs have increased significantly
Sources: Freightos Baltic Index and Bank calculations.
Imbalances in regional trade brought about by the pandemic have contributed to the rise in shipping costs. In particular, increased demand for durable goods in locked-down economies, combined with Covid-related disruption in the ports of those countries, exacerbated the shortage of shipping containers. Containers became ‘stuck’ in the US and Europe rather than returned to Asia.
The shortage of shipping containers is likely to be temporary and ultimately fade. However, shipping costs could remain elevated in the near future, supported by the strength in manufacturing and the recent commodities boom, partly driven by the recovery in economic outlook across the globe.
This post was prepared with the help of Rosie Dickinson and Gabija Zemaityte.
This analysis was presented to the Monetary Policy Committee in June 2021.