Merchandise trade is an essential component of the global trade cycle. However, this sector has been suffering in terms of growth in recent years. According to the World Trade Organisation (WTO), global merchandise trade already declined by 0.1% during the year 2019. This was due to multiple reasons, such as global trade tensions and weak demand. It is expected that merchandise trade will fall even further during the year 2020. The WTO also says it will fall between 13 and 32% throughout the year. How will the potential impact of this decline impact the global economy?
The Decline in Merchandise Trade
The WTO has estimated that world merchandise trade will fall significantly. North America and Asia will be the two regions that will suffer the most. The ongoing COVID-19 crisis has meant that there is a lower demand for products, which is hurting exporters to a great extent. There are many restrictions related to movement and social distancing. These restrictions mean that a much lesser number of people are opting to purchase imported products. Although the situation could improve in 2021, much uncertainty remains.
Impact on the Economy
This significant decline will likely hurt economic growth around the world. Three primary stakeholder groups within the global economy will be affected by the downturn: people, companies, and policymakers. Each of these will need to look for potential alternatives to cope. Employees of the trade business will suffer in terms of realizing a lower income. Similarly, companies engaged in merchandise trade may not achieve the same degree of revenues. Finally, policymakers will also be hit because they will have to devise new strategies and reshape them as the crisis evolves.
Overall, the global economy will face severely negative consequences. Merchandise trade is an essential component that drives consumption. In the absence of any growth in merchandise trade, the global economy is likely to face significant declines in GDP growth rates.
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