The International Monetary Fund (IMF) expects “a long and difficult ascent” from the COVID-19-induced recession in its biannual World Economic Outlook (WEO) report. The UN Conference on Trade and Development’s (UNCTAD) updated data on trade and investment trends confirm this conclusion.

The IMF report titled, ‘World Economic Outlook 2020: A Long and Difficult Ascent,’ finds that, although projections are less severe than forecast in the June 2020 WEO update, the global economy’s recovery will be uneven and remains uncertain. Whereas some regions are returning to growth more rapidly than anticipated, economic prospects in several emerging markets continue to worsen as coronavirus infections rise.

The report reviews global prospects, and highlights that the recovery is prone to setbacks. It notes that global trade began recovering in June as lockdowns were eased, though the return to growth was driven by China. Overall, the report projects a 10.4% contraction this year. Similarly, a UNCTAD Global Trade Update projects a 9% fall in global trade, and notes that the figure is subject to continued uncertainty. UNCTAD finds that in the third quarter of 2020, exports decreased in nearly every country except a select few in East Asia. 

If the economic impacts were primarily driven by government-imposed restrictions, then a quick economic recovery might be expected.

The WEO estimates the rate of global economic growth at -4.4% for 2020, followed by 5.2% in 2021 – less severe than the 2020 forecast in June, but also a lower recovery rate for the coming year. It postulates that these subdued figures may reflect the possibility of producers seeking to “reshore production” in order to reduce reliance on foreign producers. Indeed, the WEO data reveal that foreign direct investment (FDI) flows as a share of global gross domestic product (GDP) are well below their pre-pandemic levels, and are expected to remain as such. The latest UNCTAD Investment Trends Monitor briefing appears to align, showing that global FDI flows in the first half of 2020 were down 49% relative to 2019.

While the WEO focuses on trade in goods or overall global trade, it also flags lower cross-border travel prospects, showing a year-on-year reduction since 2019 in the percent of GDP comprised by travel and passenger transportation in five countries. The WEO notes that the outlook for tourism-dependent economies is “particularly bleak.” A quarterly UNCTAD bulletin that tracks international trade in services shows a sharp downturn in global services exports, which are down 28.5% relative to the previous year’s second quarter numbers. UNCTAD finds the decline as being steeper than that of the 2009 financial crisis, though not uniform by sector: travel was down 81.4% year-on-year, whereas transport shows a 30.1% decrease.

The WEO further unpacks the drivers of the pandemic-induced economic contractions, shedding light on whether these declines were due to government lockdowns or voluntary reductions in social activities. The report notes that if the economic impacts were primarily driven by government-imposed restrictions, then a quick economic recovery might be expected. However, if driven by voluntary behavior changes, “then economic activity would likely remain subdued until health risks recede.”  

Looking beyond the pandemic, the report turns attention to the importance of climate action and the role that the multilateral system must play to defuse trade and technology tensions, which can enable countries to meet their emissions goals and climate change mitigation commitments. The report underscores that while economic activity may have slowed this year, climate change has not. The WEO suggests that a green investment push coupled with increased carbon prices and sensible policy responses can mitigate risks from climate change. The chapter notes that market instruments, such as carbon trading programmes, have picked up since the early 2000s, but the window for climate action is “rapidly closing.” [Publication: World Economic Outlook 2020: A Long and Difficult Ascent] [WEO Landing Page] [Publication: UNCTAD Global Trade Update] [Publication: UNCTAD International Trade in Services 2020 Quarter 2] [Publication: UNCTAD Investment Trends Monitor]