Global trade to slow in Jan-March after hitting record high in Dec quarter: UNCTAD report

Rise before fall

Global trade had reached a record high in the entire year of 2021 at about $28.5 trillion, an increase of about 25 percent over 2020, and almost 13 percent rise from pre-pandemic levels of 2019, the report said.

During Q4 2021, trade in goods had remained strong while trade in services finally returned to pre-pandemic levels. Over the quarter, trade in goods increased by almost $200 billion to about $5.8 trillion, a new record. During the same period, trade in services rose by about $50 billion to about $ 1.6 trillion, just above pre-pandemic levels.

"The positive trend for international trade in 2021 was largely the result of increases in commodity prices, subsiding pandemic restrictions and a strong recovery in demand due to economic stimulus packages. As these trends are likely to abate, international trade trends are expected to normalise during 2022," the report said.

This normalisation would mean trade flows would be left exposed to supply shocks and price volatility as had been the case in 2018 and 2019, before the pandemic had hit. However, the report pointed out that developing countries’ trade outperformed developed countries in Q4 2021. South-south trade growth was above the global average.

Long term impact

The report also mentioned increasing regionalisation of trade, with benefits and consequences yet unknown. It laid emphasis on the Regional Comprehensive Economic Partnership (RCEP) which went live on January 1 2022. The mega trade pact brings together the 10-nation Association of Southeast Asian Nations (Asean) bloc, and 5 of their major trade partners - China, Australia, Japan, New Zealand, South Korea.

"This trade agreement facilitates trade among many of the East Asian and Pacific economies, and is expected to significantly increase trade among members, including by diverting trade from non-member countries," the report said.

Similar regionalisation is also expected to increase elsewhere. The African Continental Free Trade Area is set to bind the entire 54 nation strong African landmass into a close trading relationship. In general, increasing reliance on suppliers located geographically closer is also set to affect trade patterns, UNCTAD said.

Trade patterns in 2022 are also expected to reflect increasing global demand for products that are environmentally sustainable. Such patterns may also be supported by government policies regulating the trade of high-carbon products. "Moreover, global trade patterns could also be influenced by increased demand of strategic commodities required to support greener energy alternatives (e.g., cobalt, lithium, and rare earth metals)," the report flagged.

With global debt rising to record levels, rising concerns of debt sustainability are likely to intensify in the incoming quarters due to mounting inflationary pressures, the report said. "A significant tightening of financial conditions would heighten pressure on the most highly indebted governments, amplifying vulnerabilities and negatively affecting investments and international trade flows," it pointed out.