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The Economy Post-COVID-19 Era

The volume of world merchandise trade may fall drastically in the first half of 2020 as the pandemic disrupts the global economy, according to the WTO Goods Trade Barometer released on 20 May. The index currently stands at 87.6, far below the baseline value of 100, suggesting a sharp contraction in world trade extending into the 2nd quarter. The Barometer provides real-time information on the trajectory of world merchandise trade relative to recent trends. WTO’s trade forecast issued on 8 April estimated that world merchandise trade could decline by between 13% – 32%, depending on the duration of the pandemic and the effectiveness of policy responses. The current estimate shows no sign of the trade decline bottoming out yet. The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09.

Trade was already slowing in 2019 before the virus struck.  Trade tensions and slowing economic growth contributed to a slight decline of ‑0.1% in volume terms compared to an increase of 2.9% in 2018. The dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion. In contrast, world commercial services trade increased in 2019, with exports in dollar terms rising by 2% to US$ 6.03 trillion. The pace of expansion was slower than in 2018 when services trade increased by 9%. The economic shock of the COVID-19 pandemic inevitably invites comparisons to the global financial crisis of 2008-09. These crises are similar in certain respects but very different in others. As in 2008-09, governments have again intervened with monetary and fiscal policy to counter the downturn and provide temporary income support to businesses and households. But restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis. Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing.

Meanwhile, the group of African finance ministers, co-chaired by SA Finance Minister Tito Mboweni and Ken Ofori-Atta of Ghana have continued to call for the Continent’s development partners to consider a $100 billion stimulus package, forgiveness of bilateral debt,  suspension of private debt service, as well as debt relief and interest rate forbearance over a 2 to 3-year period for all African low-income and medium-income countries. So far promises of financial support and debt relief have fallen well short of the Continent’s needs as it battles the COVID-19 pandemic. Africa is facing a perfect storm of an impending global economic downturn, plummeting oil and commodity prices and weaker currencies which threaten to imperil its coronavirus response.,

The collapse of the travel and tourism industry – from airlines to safaris – could be catastrophic for African economies. The World Travel and Tourism Council (WTTC), an industry association, estimates that tourism and its associated activities generate about 9% of the Continent’s income. President Cyril Ramaphosa has called tourism the “new gold”.The sector employs 10m Africans directly, and perhaps 14m more jobs are created by its knock-on impacts. Tourism is also a major foreign exchange earner. It brings in more dollars than coffee sales in Uganda. In Ethiopia, tourist receipts account for nearly half of total exports. Businesses of all sizes have plunged into survival mode. With no revenues coming in, their future depends on how much they can reduce their costs, how much cash they hold, and whether they can access finance. An empty hotel does not need to pay for food or room cleaning, but it still has to pay salaries and fixed costs such as maintenance and electricity bills. Africa’s airlines also face tough choices. Many of them were already in bad shape before the pandemic. As airports shut down, air traffic has been reduced to cargo transport and occasional repatriation flights. The number of scheduled seats on flights to and from African countries fell by 70% in the four weeks to 6 April.

Alastair Tempest

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