new variants

Recent WTO report on services trade and January 2021 International Monetary Fund World Economic Outlook Update — the future growth depends on vaccinations of peoples around the world

On January 26, 2021, the WTO put out a press release entitled “Services trade recovery not yet in sight”. https://www.wto.org/english/news_e/news21_e/serv_26jan21_e.htm. As the press release states,

“Global services trade in the third quarter of 2020 fell 24% compared to the same period in 2019, according to statistics released by the WTO on 26 January. This represents only a small uptick from the 30% year-on-year decline registered in the second quarter, in marked contrast to the much stronger rebound in goods trade.

“Preliminary data further suggest that, in November, services trade was still 16% below 2019 levels. Prospects for recovery remain poor since a second wave of COVID-19 infections necessitated new, stricter lockdown measures in many countries, with tightened restrictions on travel and related services extending into the first quarter of 2021.

“The latest statistics confirm earlier expectations that services trade would be harder hit by the pandemic than goods trade, which was only down 5% year-on-year in the third quarter.  Foregone expenditures on tradeable services could be directed elsewhere, with consumers shifting to goods instead.”

Travel services in the third quarter were down 68% from the third quarter of 2019, a slight improvement from the 2nd quarter (down more than 80%). Transport services were down 24% in the third quarter while other services were down 2%.

As prior posts have reviewed, travel and tourism trade has been destroyed during the pandemic with as many as 100 million people’s jobs at risk. See November 4, 2020, WTO reports a 30% decline in commercial services trade in 2nd quarter of 2020 – travel challenges through September will continue to put downward pressure on commercial services trade, https://currentthoughtsontrade.com/2020/11/04/wto-reports-a-30-decline-in-commercial-services-trade-in-2nd-quarter-of-2020-travel-challenges-through-september-will-continue-to-put-downward-pressure-on-commercial-services-trade/; September 21, 2020, OECD data on services trade and latest UNWTO World Tourism Barometer – continued drag of travel and tourism on global trade, https://currentthoughtsontrade.com/2020/09/21/oecd-data-on-services-trade-and-latest-unwto-world-tourism-barometer-continued-drag-on-travel-and-tourism-on-global-trade/; September 9, 2020, Making the WTO relevant to businesses and workers – the example of travel and tourism, https://currentthoughtsontrade.com/2020/09/09/making-the-wto-relevant-to-businesses-and-workers-the-example-of-travel-and-tourism/; July 1, 2020, COVID-19 — EU move to permit some international trade in addition to intra-EU travel, effects on tourism, https://currentthoughtsontrade.com/2020/07/01/covid-19-eu-move-to-permit-some-international-travel-in-addition-to-intra-eu-travel-effects-on-tourism/; May 3, 2020, Update on the collapse of travel and tourism in response to COVID-19, https://currentthoughtsontrade.com/2020/05/03/update-on-the-collapse-of-travel-and-tourism-in-response-to-covid-19/; April 30, 2020, The collapse of tourism during the COVID-19 pandemic, https://currentthoughtsontrade.com/2020/04/30/the-collapse-of-tourism-during-the-covid-19-pandemic/.

With new lockdowns and travel restrictions occurring in the first quarter of 2021, the travel and tourism sector (including air, hotel, restaurant, entertainment sectors) is in for a continued difficult 2021 (at least the first half for some developed countries depending on vaccination staging).

The WTO press release is embedded below.

WTO-_-2021-News-items-Services-trade-recovery-not-yet-in-sight

In an earlier post, I had reviewed a World Bank forecast that tied economic recovery to the speed and breadth of COVID-19 vaccinations that occur in 2021. See January 5, 2021, Global economic rebound in 2021 will be affected by rate of vaccinations against COVID-19 – World Bank’s January 5, 2021 release of its World Economic Prospects report , https://currentthoughtsontrade.com/2021/01/05/global-economic-rebound-in-2021-will-be-affected-by-rate-of-vaccinations-against-covid-19-world-banks-january-5-2021-release-of-its-world-economic-prospects-report/.

In an update to its World Economic Outlook released earlier this week, the IMF noted that while global economic growth in 2021 and 2022 is expected to be somewhat stronger than previously projected, the level of growth is dependent on vaccine availability and vaccinations and whether there is widespread availability to peoples of the world. See IMF, World Economic Outlook Update, January 2021, https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update. The header and first three paragraphs of the update are copied below.

Policy Support and Vaccines Expected to Lift Activity

“Although recent vaccine approvals have raised hopes of a turnaround in the pandemic later this year, renewed waves and new variants of the virus pose concerns for the outlook. Amid exceptional uncertainty, the global economy is projected to grow 5.5 percent in 2021 and 4.2 percent in 2022. The 2021 forecast is revised up 0.3 percentage point relative to the previous forecast, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies.

“The projected growth recovery this year follows a severe collapse in 2020 that has had acute adverse impacts on women, youth, the poor, the informally employed, and those who work in contact-intensive sectors. The global growth contraction for 2020 is estimated at -3.5 percent, 0.9 percentage point higher than projected in the previous forecast (reflecting stronger-than-expected momentum in the second half of 2020).

“The strength of the recovery is projected to vary significantly across countries, depending on access to medical interventions, effectiveness of policy support, exposure to cross-country spillovers, and structural characteristics entering the crisis.”

On the IMF webpage for the update there is a colored chart showing projected growth for certain groupings of countries. The Chart is embedded below.

growth-projections-weoupdate-jan21-eng

From press reports it is known that the rollout of vaccines has hit some early snags with both Pfizer/BioNTech and AstraZenaca announcing reduced shipments to some countries. BBC News, Coronavirus: Vaccine supply fears grow amid EU export threat, 26 January 2021, https://www.bbc.com/news/world-europe-55805903#:~:text=The%20EU%20has%20warned%20Covid,cannot%20supply%20the%20expected%20numbers. Indeed, the EU is considering steps to monitor and/or restrict exports of vaccines depending on fulfillment of contracts with the EU and member states, raising concerns about vaccine nationalism. NBC News, E.U. threatens to restrict exports of Covid vaccines amid rollout anger, January 26, 2021, https://www.nbcnews.com/news/world/eu-threatens-restrict-exports-covid-19-vaccines-amid-rollout-anger-n1255636.

Similarly, new variants that are apparently more contagious and possibly more deadly are spreading resulting in heightened travel restrictions which will retard any recovery in the travel and tourism sector. Washington Post, Coronavirus updates: As variants spread, countries pursue new round of travel restrictions, January 26, 2021, https://www.washingtonpost.com/nation/2021/01/26/coronavirus-covid-updates/. There are also concerns about whether initial vaccines will be effective against the new variants. New York Times, As Virus Grows Stealthier, Vaccine Makers Reconsider Battle Plans, January 25, 2021, https://www.nytimes.com/2021/01/25/health/coronavirus-moderna-vaccine-variant.html.

At the same time, Africa which had recorded relatively few cases and deaths from COVID-19 for much of 2020 is now experiencing significant increases in both which is overwhelming health systems in some areas. Financial Times, Coronavirus second wave surges across Africa, Mildly hit the first time round, the continent’s death rate has now overtaken the global average, 17 January 2021, https://www.ft.com/content/3d000093-87a3-48f3-8bb5-4ad9a8316aa1

The COVAX facility designed to help many countries (including many poor countries) access vaccines has a significant funding shortfall at present despite the U.S. rescinding its notice of withdrawal from the WHO and its agreement to participate in COVAX. Reuters, U.S. alone won’t fill COVAX funding gap, lead official says, January 22, 2021,https://news.trust.org/item/20210122130041-jr1j3. The Secretary-General of the World Health Organization has expressed concern that the world will fail to make vaccines available to all at affordable prices in a timely manner. WHO Director-General, Dr Tedros Adhanom Ghebreyesus, Debate on the report “COVID-19 vaccines: ethical, legal and practical considerations,” 27 January 2021, https://www.who.int/director-general/speeches/detail/debate-on-the-report-covid-19-vaccines-ethical-legal-and-practical-considerations. The WHO Director-General’s speech is embedded below.

Debate-on-the-report-COVID-19-vaccines_-ethical-legal-and-practical-considerations

The WHO’s Director-General references a report from the International Chamber of Commerce Research Foundation. The report and a press release can be accessed here: ICC, The Economic Case for Global Vaccinations, https://iccwbo.org/publication/the-economic-case-for-global-vaccinations/. The press release from the ICC describes the report as follows.

“A study commissioned by the International Chamber of Commerce (ICC) Research Foundation has found that the global economy stands to lose as much as US$9.2 trillion if governments fail to ensure developing economy access to COVID-19 vaccines

“The COVID-19 pandemic had a devastating effect on both lives and livelihoods in 2020. The arrival of effective vaccines can be a major game changer in mitigating the economic, social and health consequences of the virus in the year ahead.

“However, evidence to date suggests that access to these vaccines is likely to be highly uneven across countries. Advanced economies have in recent months pursued a policy of securing the global supply of frontrunner vaccines – as a result severely limiting their availability in emerging markets. Moreover, the Access to COVID-19 Tools (ACT) Accelerator – the proven global platform to enable equitable access to COVID-19 test, treatments and vaccines – remains underfunded by the world’s largest economies, constraining its ability to procure vaccines at scale for the developing world.

“A new study highlights the major risks to the global economy inherent in this uncoordinated approach to vaccine access. Using a sophisticated model – that builds upon an earlier NBER and IMF Working Paper – to properly the assess the economic toll of a prolonged pandemic, the research shows that no economy can recover fully from the COVID-19 pandemic until vaccines are equally accessible in all countries.

“In short, advanced economies that can vaccinate all of their citizens are shown to remain at risk of a sluggish recovery with a drag on GDP if infection continues to spread unabated in emerging markets. These losses dwarf the donor finance needed to enable vaccines to be procured for everyone, everywhere – making a clear ‘investment case’ for full capitalization of the ACT Accelerator and a coordinated global approach to distribution.”

Conclusion

While the recent releases from the WTO and IMF show somewhat better rebounds from the effects of the pandemic in the third quarter of 2020 (WTO) and into 2021 and 2022 (IMF), the key to global recovery lies in the approval of effective vaccines and the equitable and affordable distribution and vaccinations of populations around the world. Major advanced economies, many suffering from high infection and death rates in 2020, are using their financial muscle to secure contracts to deal with getting the pandemic under control within their borders. While there has been extensive work to create a mechanism to get vaccines to other countries in 2021 and 2022, there remain funding needs and questions about whether vaccines will in fact be available for use for these other countries. A lot depends on the efforts to ensure equitable distribution of vaccines to all those in need. There is a large opportunity for governments, businesses, and private organizations and citizens to help fill the gap. Because the failure to do so carries a likely huge cost, making sure funds are available to get the world vaccinated is in everyone’s interest. The outcome will determine global growth rates and trade flows for the coming years.