The International Monetary Fund (IMF) published a June 2020 Update to its World Economic Outlook (WEO), revising its April projections downward. The WEO indicates more significant declines to world output and trade volumes due to COVID-19 and a slower global economic recovery than initially predicted. The World Trade Organization’s (WTO) analysis of recent projections on trade volumes suggests that government responses have helped temper the decline.

The WEO June Update forecasts -4.9% growth in world output for 2020, 1.9% below the -3.0% projected in April, and 5.4% growth in 2021, down from 5.8% in April.

World trade volume in goods and services is projected to shrink by 11.9% in 2020, but rebound with an 8.0% expansion in 2021. Similar to those on global growth, both figures have been revised downward since April, from -11.0% and 8.4%, respectively. The WEO June Update flags, however, that like the numbers issued in April, these numbers are accompanied by a “higher-than-usual degree of uncertainty” and that a range of factors and assumptions could impact the final statistics.

A slow recovery path in countries that already have the virus under control, for example, may reflect continued social distancing throughout the second half of 2020. For countries whose infection rates have not yet peaked, the WEO June Update acknowledges that lockdowns “will inflict an additional toll on activity.” Other considerations include, inter alia, the extent to which displaced workers are able to secure new employment and how additional workplace safety measures will affect productivity and costs.

To combat further economic fallout and prepare society for both recovery and resilience moving forward, the WEO June Update highlights the importance of multilateral cooperation throughout the pandemic, including liquidity assistance, debt relief, the resolving of trade tensions, the implementation of climate change mitigation commitments, and the global stockpiling of protective equipment and essential supplies. The IMF notes that policy countermeasures – particularly in the fiscal and financial sector – have limited the economic damage.

A WTO press release also emphasizes that despite falling trade, rapid government responses – primarily relating to fiscal and monetary policies – helped temper the contraction. WTO Director-General Roberto Azevêdo acknowledged that, although “the fall in trade we are now seeing is historically large” and represents that steepest decline on record, “it could have been much worse.”

The release notes that, when taken with a series of other economic indicators, the data point to trade having potentially already bottomed out in the second quarter, thus setting the stage for recovery. While the release does not stand in contrast to the IMF’s WEO June Update, the WTO Trade Forecast (from April 2020) projects a significantly larger increase in trade volume for 2021. Of note, the WTO highlights that their “trade volume figures refer to merchandise trade, while other organizations refer to goods and services trade.”

The WTO data present an “optimistic” and “pessimistic” scenarios where, in 2020, trade volume contracts by 12.9% and 31.9%, respectively. The scenarios then project 21.3% and 24% positive changes in trade volume for the year 2021, representing a faster recovery than other organizations’ analyses. Noting the above caveat, the IMF’s WEO projects a 2020 contraction in line with the optimistic scenario, but a significantly slower return to growth than the WTO data.

The WTO release also notes projected changes to real gross domestic product (GDP) and to elasticity, which measures the ratio of trade volume growth to GDP (higher elasticity indicates a more proportional response). At current projections, elasticity is projected to be lower than it was during the 2008-2009 financial crisis, implying that trade will hold up despite decreases in income. The release postulates that trade might not be as responsive to changes in GDP as it was during the 2008-2009 financial crisis.

Much of the decline resulting from COVID-19 has been in non-tradeable services such as hospitality and entertainment, which are less import-sensitive, the release notes. Further, sales of consumer electronics and other goods have “thus far held up better than expected,” despite sharp decreases in automobile sales early on in the pandemic. Overall, sectors that support working from home, for example information and communications technology (ICT), are showing year-on-year growth. [Publication: IMF World Economic Outlook Update, June 2020: A Crisis Like No Other, An Uncertain Recovery] [WTO Press Release]