The number of deaths also declined for the third consecutive week, down 3% compared to the previous week. In terms of retail and leisure activity, footfall has returned to pre-pandemic levels in Germany, Belgium, France and Italy, while it is still below pre-Covid levels in Spain, the United States, Japan and the UK.
Although the momentum remains strong, world trade volumes could begin to taper off this summer, judging by the results of recent opinion surveys. The global PMI index declined 2 points to 56.6 in June, pulled down by the drop in the manufacturing “new export orders” component.
The number of new Covid-19 cases continues to rise worldwide. The surge is due to the Delta variant, which is much more contagious than the other variants. It has now spread to more than 110 countries. The number of daily cases passed the half million mark on July 13 and 14.
World trade in goods has rebounded very strongly, even though major divergences exist between regions due mainly to widely contrasting health and economic situations. The turnaround in services exports has been much slower, with transport and tourism still holding at very low levels. Trade in information and communication technology (ICT) services was much more resilient in 2020. Brexit triggered a sharp increase in the number of new trade agreements in 2021. Two major trade agreements negotiated by the European Union are still pending, one with Mercosur and the other with China. Negotiations between the United States and China are also at a standstill after the failure of bilateral talks held in Alaska in mid-March.
World merchandise trade has recovered much quicker from the steep fall at the outbreak of the Covid-19 pandemic than anticipated. In March and April 2020, at the height of the crisis, trade was almost 20% lower than a year earlier. Despite the continuation of the lockdown restrictions and distancing rules in large parts of the industrial world, world trade has continued to expand. In November 2020 (latest data available), merchandise trade was back at the level at the end of 2019. After the financial crisis in 2008, it took more than two years for trade in goods to return to the pre-crisis level. The reason for the quick recovery in goods trade is due to the special nature of the shock, which affected in particular services such as retail trade and the catering industry
The United Kingdom has since 1 January fully exited the European Union, and a free-trade agreement has been found, as has been customary with Brexit, at the last minute. While that is good news for the British and European economies, Brexit is still “hard” and will surely trigger substantial economic losses in the long term.
Although the United Kingdom officially left the European Union on 31 January 2020, trade relations between the two trading blocs remain intact during a transition period. Barring a spectacular turn of events, this period will end on 31 December. Whatever happens, the UK is heading towards an exit from both the EU’s single market and customs union. This means that it will be a “hard” Brexit. And it could be the hardest possible if the two parties failed to agree on a free trade agreement. In fact, UK and EU negotiators have just completed their ninth round of talks – the last initially planned – but there are still major divergences
The Central European countries are exposed to the impact of the Covid-19 pandemic on trade flows, through their integration in multi-country supply chains. In the short term, it creates spillover effects from the contraction in economic activity observed in Western Europe, particularly in Slovakia and the Czech Republic, via the automotive sector. Although the Central European countries moved up the value chain in the automotive industry, the proportion of a vehicle built locally has not widely increased in recent years
The US-China trade deal has brought relief. It avoids new tariff increases by the US with the risk of further escalation. The deal should be welcomed in China, given its ongoing growth slowdown, but also in the US where companies had increasingly expressed their concern about the trade confrontation The rest of the world will monitor closely the extent of trade diversion which could follow from the agreement. Attention will now shift to the phase 2 negotiations, which could very well mean that trade uncertainty will intensify at some stage.
Against a background of trade tensions between the US and China, economic policy uncertainty remains very high. Uncertainty of German companies, measured by the dispersion in their assessment of the business environment, is no longer increasing, yet remains at a high level. Uncertainty of US companies had dropped at the start of the year, but has now rebounded a bit. Geopolitical risk, measured using news coverage, has been on a rising trend since early 2013, although it has eased recently. Uncertainty based on the dispersion of the stock market performance of individual companies has declined since the start of the year.
Import tariffs have a negative impact on the targeted country. Retaliation will in turn have negative consequences for the country which started the tariff hikes. Even in the absence of retaliation, there will be negative consequences. Household spending will suffer from a loss of spending power due to an increase in inflation following higher import prices and/or a switch to domestically produced goods. For the same reason, aggregate corporate profits may suffer. Companies may also cut back their investment because of increased uncertainty. Empirical research confirms these outcomes.
Industrialized Asian countries are hit by a severe slowdown in their external trade. Signs of weakening have been visible since the beginning of 2018 and aggravated since November, following the last series of US tariff hikes on imports of Chinese goods. In fact, Asian exporters have been severely affected by the contagion effects of these US tariff hikes, as well as by the economic slowdown of the main world trade partners and by the down cycle in the global electronic sector. In January-February 2019, total exports of goods in USD collapsed in China (-5.2% year-on-year), in South Korea (-8.7%) and Taiwan (-4.1%). Export growth slowed down significantly in other countries, including Vietnam (+3.9%)