World commercial services trade shows resilience despite momentum loss: WTO

4.3 per cent dip in services trade in first quarter of 2020 was not as much as earlier anticipated

Despite losing momentum, global trade in commercial services is showing signs of resilience and has fared batter than merchandise trade, the World Trade Organization (WTO) has said. While services trade fell 4.3 per cent in the first quarter of 2020 after the coronavirus pandemic appeared on the global stage, the decline was smaller than the WTO had feared earlier.

The global body’s Services Trade Barometer (STB), launched exactly a year back, on Thursday showed a latest reading of 95.6, suggesting a lesser than feared slowdown. Readings of 100 indicate growth in line with medium-term trends, while readings greater than and below 100 indicate above-trend and below-trend growth, respectively. The direction of change reflects momentum compared to the previous month. The barometer is part of the WTO’s efforts to develop new insights into services trade and is released twice annually.

The services trade activity index, which provides an approximate measure of the volume of world services trade, registered a year-on-year decline of 4.3 per cent in the first quarter of 2020. "While substantial, this decline is smaller than those seen during the financial crisis over a decade ago, when services trade fell by 5.1 per cent in the first quarter of 2009 compared to the previous year before registering an even bigger 8.9 per cent slump in the second quarter," the global body said. 

Services trade growth had been slowing in the second half of 2019, and the recent contraction in services trade reflects a weakening pace of global economic growth as well as the early stages of the Covid-19 pandemic. While the index is expected to remain below trend into the second half of the year, a recovery in passenger air transport would make a powerful contribution to a turnaround. 

Declines in most of the component indices drove the first quarter softening, but some components did show signs of bottoming out.. The passenger air travel index (49.2) has been the hardest hit by the pandemic, with the biggest decline ever recorded for any of the barometer's components, reflecting the precipitous drop in travel linked to Covid-19 and efforts to stop its spread. However, the contraction appears to have stabilised recently. Indices representing container shipping (92.4), construction (97.3), and the global services Purchasing Managers' Index (97) also showed signs of turning around. 

Interestingly, the Information and Communication Technologies services index tumbled to 94.6 despite robust demand during the pandemic. The financial services index (100.3) was the sole component index that remained on trend as of mid-September.

Services trade has generally held up better-than-goods trade since the latter is more directly affected by recent trade tensions. Unlike its counterpart for goods, the fluctuations registered by the services indicator coincide with movements in actual trade flows, rather than anticipating them.

Last month, the WTO’s similar barometer for goods trade showed that global merchandise trade volume is estimated to have contracted 14 per cent in the first half of 2020, and may see an overall 13 per cent decline in 2020. While it was confirmed that trade volumes had crumbled steeply in H1 there were also hints at a nascent recovery.

India’s services exports, focused on the information technology and IT-enabled services have managed to fare better than global peers. In July, services exports stood at $17.03 billion, witnessing a 10 per cent fall, whereas imports stood at $10.05 billion, a fall of nearly 22 per cent.