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UNCTAD Has Just Published The November Edition Of Its Global Trade Update

New estimates show that world trade continues its remarkably strong but uneven recovery from the COVID-19 pandemic. Key findings include:

- World trade in goods set a new record of $5.6 trillion in the third quarter of 2021.

- Overall, trade in goods and services is projected to reach $28 trillion for the year, a 23% increase compared with 2020 and 11% above pre-COVID-19 levels.

- Trade in services shows increasing momentum but remains below pre-pandemic levels.

Global trade outlook

The positive trend for international trade in 2021 is largely the result of the strong recovery in demand due to subsiding pandemic restrictions, economic stimulus packages, and increases in commodity prices.

However, the forecast for 2022 remains very uncertain due to several factors including:

• Slowing economic recovery.

The strong economic recovery of the first half of 2021 has slowed during the second half of 2021. In particular, economic growth of China in Q3 2021 was below expectations and lower than in previous quarters. Lower than expected economic growth rates are generally reflected in more downcast global trade trends. Rising commodity prices and inflationary pressures may also negatively affect economic prospects and international trade flows. In addition, many economies, including those in the European Union, continue to face COVID-19 related disruptions. These disruptions may negatively affect consumers’ demand and ultimately be reflected in trade statistics for the upcoming quarters.

• Disruptions of logistic networks and increases in shipping costs.

The recovery of 2021 has been marked by large and unpredictable swings in demand, which have resulted in an increased stress on supply chains. Logistic disruptions and high fuel prices have further contributed to supply shortages and spiraling shipping costs. In particular, the backlogs across major supply chain hubs that have characterized most of 2021 could continue into 2022 and therefore negatively affect trade and reshape trade flows across the world.

• Global semiconductor shortage.

Trade in some important sectors showed signs of weakness in 2021 because of semiconductor shortages. Since the onset of the COVID-19 pandemic, the semiconductor industry has been facing headwind due to unanticipated surges in demand and persisting supply constraints. The shortage of semiconductors has already disrupted many industries, notably the automotive sector. If persistent, this shortage could continue to negatively affect production and trade in many manufacturing sectors.

• Geopolitical factors and the regionalization of trade flows.

The ongoing geopolitical tensions among some of the major economies may result in renewed trade confrontations with important repercussions for international trade flows. Moreover, the implementation of regional trade agreements, such as the African Continental Free Trade Area and the Regional Comprehensive Economic Partnership, is expected to influence global trade patterns. Regional trade within Africa and within the Asia-Pacific area is expected to increase, but also by diverting trade away from other routes.

• Governmental policies affecting international trade

Governments are becoming increasingly supportive of domestic socio-economic and strategic goals. Efforts towards a more socially and environmentally sustainable economy can affect international trade. For example, government policies can aim to disincentivize the trade of product varieties with high carbon content, or of goods that are linked to the exploitation of labor or the environment. Many governments may become keener on supporting strategic goals such as those related to food security or the indigenous growth of particular industries (e.g., transport and semiconductors). Such policies would affect international trade patterns.

• Debt burdens.

The additional borrowing of governments to sustain their economies during the COVID-19 crisis could pose continuous risks of financial instability, especially in the case of global inflationary pressures. Rising interest rates and obligations on debt servicing could bring instability to many countries and negatively affect investments and international trade flows, especially for developing countries whose fiscal policy space is limited.

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