Photo credit: AUUSanAKUL/Shutterstock.com Goods trade weakened as services recovery continued Goods Trade KEY MESSAGES » Goods trade contracted slightly in the first Global goods trade continued to contract quarter of 2023 as tight monetary conditions, slightly in the first quarter of 2023 following a growing financial stress, elevated geopolitical faster-than-expected recovery in most of 2022. tensions and lingering pandemic-related The weakness reflected a post-pandemic shift in disruptions in East Asia weighed on global demand back to less trade-intensive services from demand. tradeable goods, tight monetary policy aimed at combating inflation, growing financial stress in » Services trade continued to recover, with travel advanced economies and persistent geopolitical already close to 2019 pre-pandemic levels and tensions. Trade values declined by 3.7 percent from on track to exceed them in 2023 (particularly in January through March 2023 over the previous China and the rest of East Asia). three months and by 2.5 percent relative to the first » Global containerized shipping activity picked quarter of 2022, although they still exceeded levels up globally in the second quarter of 2023. from 2019 to 2021 (Figure 1a). Both traded volumes Capacity constraints and shipping rates eased and prices contributed to the contraction in values. back to pre-pandemic levels. On a year-on-year basis, seasonally adjusted volumes shrank by 1.2 percent and prices declined by 1.7 percent, driven in part by a 28 percent drop in fuel prices (CPB World Trade Monitor). As of the third quarter of 2022, trade prices had retreated by 4 percent from the peak in June 2022 and have This note has been prepared by the Trade Unit in the Trade, remained relatively stable since then, albeit still Investment, and Competition (TIC) department. It has been prepared by a team led by Cristina Constantinescu, with high by historical standards. The latest WTO goods contributions by Marlon Amorim, Jean Francois Arvis, Karen trade barometer also points to a decline in trade Muramatsu, Daria Ulybina, and Chris Wellisz, under the guidance in the first quarter of 2023. The factors weighing of Sébastien Dessus and Mona Haddad. For further information on demand are likely to persist through 2023, with please contact Cristina Constantinescu at ineagu@worldbank. growth in the global trade volumes for goods and org. Underlying data for some figures and additional data and charts can be found in the online Excel file that accompanies services combined projected to slow to 1.7 percent Trade Watch. The file includes data used in the latest issue. in 2023 from 6 percent in 2022 (World Bank Global Data for previous issues can be shared upon request. Economic Prospects, June 2023). Page 1 TRADE WATCH | Quarter 2, 2023 Goods trade declined in multiple regions, led b. Trade in current U.S. dollars (n.s.a.) by by East Asia (excluding China) and Europe and region, year-on-year percent change Central Asia (Figure 1b). In early 2023, China’s -15 -10 -5 0 5 10 15 exports recovered from the large decline of the ECA (excl. EU) previous quarter, but imports remained depressed, MENA as the effects of COVID-19 stimulus measures on SSA domestic demand started to fade. In the rest of East East Asia Exports Asia, exports and imports deepened their slump South Asia amid lingering disruptions in regional value chains China LAC due in part to the unbalanced rebound in China’s European Union (EU) trade. Relative to the first quarter of 2022, exports US and Canada declined by 11.6 percent in Europe and Central South Asia Asia (excluding the European Union) as the drop in China global fuel prices slashed export receipts in Russia East Asia and Norway by around 30 percent. The sanctions- US and Canada Imports ECA (excl. EU) induced drop in Russia’s trade continued to be European Union (EU) offset by diversion to alternative trading partners; LAC for example, Russia’s share in US and EU imports MENA declined by over 70 percent each, but its share in SSA China’s imports increased by 45 percent and in India’s by 360 percent. Meanwhile, Ukraine’s exports Oct-Dec 2022 Jan-Mar 2023 remained depressed, at 34 percent below the level Sources: WB staff calculations using data from WTO, World Bank Global Economic Monitor, IMF in the previous year. Export receipts plunged among International Financial Statistics, OECD, UN Comtrade and official data from China, Eurostat, Japan, UK, and the U.S. fuel and commodity exporters in the Middle East and North Africa, Sub-Saharan Africa, and South Asia but grew in Latin America and the Caribbean The trade contraction affected fuels, metals, and on the back of robust growth in Mexico. Imports selected manufacturing sectors, but transportation also weakened, with most regions seeing declines. equipment and few other product groups bucked Preliminary data for 13 countries suggest trade the trend (Figure 2). Fuel trade values declined by remained subdued in April 2023. 3.4 percent in the first three months of 2023 over the previous year as global demand eased and prices fell, breaking the pattern of robust year-on-year Figure 1: Goods trade contracted slightly in early 2023. growth rates seen since early 2021. Trade in metals remained depressed on the back of weak domestic demand in China. Declines continued in apparel, a. Global goods trade in current U.S. dollars, n.s.a. 2,200 electronics, machinery, and chemicals, reflecting subdued global demand and lingering turbulence in 2,000 East Asia. Meanwhile, trade in agricultural products, current US dollars (billion) 1,800 foodstuffs, and extractive industries other than fuels 1,600 exceeded the levels in the previous year, as prices held up better than for fuels. Trade in transportation 1,400 equipment stood out as the brightest spot, 1,200 increasing by 15.6 percent compared to the first quarter of 2022, and exceeding pre-pandemic levels 1,000 in 2019 by 16 percent, as the return to pre-pandemic Aug May Feb Jul Mar Apr Jan Jun Nov Sep Oct Dec transportation patterns buoyed demand, and the 2019 2020 2021 2022 2023 shortage of semiconductors used in cars eased. Trade in transportation equipment had taken longer to recover from the pandemic than other goods, staying at or below levels in 2019 until mid-2022. Page 2 TRADE WATCH | Quarter 2, 2023 Figure 2: Declines were led by metals, textiles, and to travel services, continued to improve through electronics (trade in current US dollars by product 2023, as more countries lifted restrictions. As of June group, n.s.a., year-on-year percent change) 2023, 170 countries had no COVID-19 restrictions (up from 112 in March 2023); international tourist arrivals Iron, steel, and other metals -7.7 in March 2023 were at 78 percent of levels of 2019 Textiles, apparel, leather, footwear (Figure 3c). -6.6 Electronics -5.9 Chemicals, plastics, rubber -5.1 Figure 3: Trade in services increased as travel Fuels -3.4 approached pre-pandemic levels. Machinery -3.2 Toys, furniture -1.0 a. Index of trade in current US dollars (2019=100) Food, beverages, tobacco, wood, paper 1.1 150 Other industries 2.3 Agriculture, meat and dairy, seafood 3.4 100 Extractive industries (excl. fuels) 5.1 50 Transportation equipment 15.6 0 Oct-Dec 2022 Jan-Mar 2023 2019 2020 2021 2022 Goods Services Sources: WB staff calculations using data from China Customs, Eurostat, Japan Customs, the Transport services Travel servi ces US Census and UN Comtrade. Note: HS codes indicated in parentheses) Other services Services Trade b. Services trade by sub-sectors (2017-2019=100) 200 Trade in services continued to grow in the first 150 quarter of 2023 after rebounding in 2022. Trade 100 in services values (in current US dollars) increased by 15 percent in 2022 over 2021 and exceeded pre- 50 pandemic levels in 2019 by 9 percent; transport 0 services—which tend to track goods trade—rose Jul-19 Jul-20 Jul-21 Jul-22 May-21 Sep-21 May-22 Sep-22 May-19 Sep-19 May-20 Sep-20 Nov-20 Jan-21 Mar-21 Nov-21 Jan-22 Mar-22 Nov-22 Jan-23 Mar-23 Jan-19 Mar-19 Nov-19 Jan-20 Mar-20 by 38 percent relative to 2019, and other services (excluding travel) grew by 13 percent (Figure 3a). In Total Transport Travel ICT the first quarter of 2023, trade in services increased Other business Other services by 5.3 percent relative to 20221, with all services Construction and goods-related subsectors trending upward (Figure 3b). c. International Tourist Arrivals Trade in travel services approached pre- 200 pandemic levels in the first quarter of 2023 after recovering swiftly in 2022. Travel services, which 150 Million plunged by 61 percent in 2020 and remained 100 significantly depressed in 2021, showed signs of 50 a strong recovery in 2022, surging by 79 percent of 2021 levels, amid a gradual removal of travel 0 restrictions (Figure 3a). Travel services continued ay t ch il r r ly Fe ry er r ry ne us be be be pr Ju ob a ua M ar Ju nu ug em em em A br M to recover in the first quarter of 2023, increasing ct A Ja O ov pt ec Se D N by 53 percent relative to 2022 yet remained below 2019 2023 2022 2021 2020 the corresponding levels in 2019 (Figure 3b). In- ternational tourist arrivals, which are closely linked Source: a.b- WB staff calculations using on WTO and UNCTAD data; c - UN World Tourism Organization. Note: b - The global aggregate includes services exports and imports. Data include 14 economies that reported in November 2022, which accounted for approximately 38 percent of global services exports and 39 percent of global services imports in 2017 (UNCTAD). 1. The global aggregate monthly data is based on data available for 35 economies, which represented 58 Other services include insurance and pension, financial, royalties, personal and recreational, and percent of global services exports and 57 percent of imports in 2017 according to data from UNCTAD. gov-ernment services n.i.e. Page 3 TRADE WATCH | Quarter 2, 2023 The rebound in travel services from the Logistics Constraints pandemic fallout varied by region (Figure 4a), depending on the pace at which restrictions were removed. In 2022, travel exports already exceeded Logistics constraints continued to ease during 2019 levels in Middle East and North Africa (notably 2023, with global capacity stress back at pre-COVID Saudi Ara-bia, Jordan, Morocco, Egypt as well lev-els as of May (Figure 5a). North American West as Kuwait and Qatar) and Latin America and the Coast port congestion and delays—major sources of Caribbean (in Mexico, Argentina, Colombia, and global logistics stress since 2021—have dissipated, the Caribbean). By contrast, travel exports (and as the expected arrival time normalized and the imports) lagged on a broad basis in East Asia and number of ships waiting in line dropped to zero. the Pacific (with the largest negative contributions However, ship delays and tensions may resurface in from Thailand, Japan, and China). Travel exports in the region if dockworker strikes that started in June Europe and Central Asia remained depressed, with 2023 persist into summer. With the improvement declines in Russia, Ukraine, Norway and Switzerland of traffic in North America, the main drivers of the offsetting strong recovery in Turkey and selected remaining global capacity stress shifted to Asian countries in Eastern Europe and Western Asia. In the and South European ports (Figure 5b). first quarter of 2023, Asia and the Pacific remained the region most affected but showed signs of strong Figure 5: Stress eased on the West Coast of North recovery, as observed in international tourist arrivals America (Stress and capacity, globally and by region). (Figure 4b). a. Supply chain capacity stress (million TEUs) Figure 4: Trade in travel services and tourist arrivals 2.5 recovered at different speeds across regions. 2.0 1.5 1.0 a. Trade in travel services by region, 0.5 percent change, 2022 vs. 2019 0.0 MENA May-20 Sep-20 May-21 Sep-21 May-22 Sep-22 May-23 Jan-20 Jan-21 Jan-22 Jan-23 LAC SSA ECA (excl. EU) Global North America West Coast North America East Coast EU SAS CAN, USA EAS b. Average Sources Of Global Shipping Capacity Stress, -80 -60 -40 -20 0 20 40 By Region: Jun 2022 – May 2023 Travel exports Travel i mports 9% 2% 12% 7% b. International tourism by region (YoY% change) 15% *Years compared with 2019 50% 21% 0% 23% -50% 7% 4% -100% World Middle East Europe Africa Ameri cas Asi a and the Europe Mediteranean Sea China Paci fic South-East Asi a Japan Korea North America East Coast Q1 2023 2022 2021 2020 North America West Coast Middle East Others Source: a- World Trade Organization; b – UN World Tourism Organization. Notes: a. MENA Source: WBG staff calculations using data from MarineTraffic’s Automatic Identification System – Middle East and North Africa; LAC – Latin America and the Caribbean; SSA – Sub-Saharan (AIS). Note: The indicators were derived using a global port calls database prepared for the Africa; ECA – Europe and Central Asia; EU – European Union; SAS – South Asia, CAN – Canada; World Bank by MarineTraffic, covering over 7,000 containerships calling at over 1,000 ports USA – United States, EAS – East Asia and the Pacific. worldwide. The stress index is an estimation of shipping capacity additionally mobilized or stalled at ports when excessive delays are observed over historical port-to-port lead time. Page 4 TRADE WATCH | Quarter 2, 2023 Shipping rates have dropped to historically Trade carrying capacity data point to robust low levels, corroborating evidence of reduced trade trends. Between March and May 2023, trade logistics constraints. In May 2023, the Shanghai carrying capacity picked up (Figure 7), suggesting Containerized Freight Index was below 1,000 basis strengthening global trade over that period. This is points (Figure 6) down from the record high values consistent with the recent issue of the WTO Goods of over 5,000 points reached just two years earlier Trade Barometer (May 31, 2023), which highlights (see previous issues of the Trade Watch). a possible trade turnaround in the second quarter of 2023 based on improvements in forward-looking indicators such as export orders and output of Figure 6: Shanghai Containerized Freight Index. automotive products. Figure 7: Trade Carrying Capacity Millions TEUs 17.5 17.0 16.5 16.0 15.5 15.0 14.5 14.0 Jan-19 May-19 Jul-19 Sep -19 Jan-20 May-20 Jul-20 Sep -20 Jan-21 May-21 Jul-21 Sep -21 Jan-22 May-22 Jul-22 Sep -22 Jan-23 May-23 Mar-19 No v-19 Mar-20 No v-20 Mar-21 No v-21 Mar-22 No v-22 Mar-23 Sum of Trad e Capacity, 4 weeks r ollin g mean Sum of Trade Capacity Source: Shanghai Shipping Exchange Source: WBG staff calculations using data from MarineTraffic’s Automatic Identification System (AIS). Note: The indicators were derived using a global port calls database prepared for the World Bank by MarineTraffic, covering over 7,000 containerships calling at over 1,000 ports worldwide. The main indicator is instant (weekly) capacity calling in countries or regions, measured in capacity units of Twenty-Foot Equivalent (TEU) boxes. Page 5 TRADE WATCH | Quarter 2, 2023