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The Global Trade Slowdown Is Expected to Continue in 2020

Sources: IHS Markit, Euler Hermes Actual and anticipated gains and losses are shown in billions of U.S. dollars.

Global trade in 2019 is on track for its slowest annual growth in a decade at +1.5% with “no hope for sizeable improvement” in 2020, according to a new report by Euler Hermes, which blames higher tariffs and uncertainty regarding trade policy for the slowdown.  

Exporters are likely to see $420B in losses this year, according to the report, with modest 1.7% growth predicted for next year. Inside the 2020 number is a mixed bag with software and IT services (+$62B), agrifood (+$41B) and chemicals (+$37B) moving ahead, and electronics (-$47B), metals (-$42B), and machinery and equipment (-$27B) lagging behind. 

“The so-called phase 1 deal between the U.S. and China, despite being superficial, may bring some comfort,” said Ludovic Subran, chief economist at Allianz and Euler Hermes.

“But renewed threats of tariffs and a busy political year in 2020 should bring higher volatility, leaving no hope for sizable improvement going forward.” 

China’s COVID Shutdowns Disrupt Supply Chains

Source: Bloomberg

Global supply chains are experiencing disruptions for the second year in a row, due to a new wave of COVID-19 sweeping through China, reports Bloomberg. China’s zero-COVID policy restrictions have caused shipping, air freight, and trucking delays, setting back supply chains already reeling from the pandemic and Russia’s invasion of Ukraine.

Experts estimate that the ripple effects from the lockdowns and bottlenecks will extend throughout the year. Global trade started to rebound last year after its slump in 2020, but the conflict in Ukraine and now backlogs in China will lower trade volume and raise prices. China accounts for 12% of global trade.

Currently, it takes 111 days for cargo for goods to travel from Asia to the U.S., more than double the time it took in 2019. It takes even longer, 118 days, for goods to reach Europe from Asia, according to freight-forwarding company Flexport Inc.

In response, companies are considering shifting their supply chains out of Asia—79% of CEOs are planning to or have already moved part of their manufacturing from China to the U.S.

Ukraine Crisis Sets Back Europe’s Economy

The conflict in Ukraine is taking its worst toll in human lives, but it will also set back Europe’s economic recovery from the pandemic, the International Monetary Fund reports. Rising inflation, spiking energy and food prices, and disruptions to supply chains have lowered the growth projections for multiple countries, especially Ukraine and Russia.

The IMF’s latest Regional Economic Outlook predicts that several major economies, including France, Germany, Italy and the U.K., will barely expand or contract for two quarters this year. Russia’s invasion of Ukraine is forecast to shrink its economy by 8.5% and Ukraine’s by 35%. The IMF also lowered their GDP growth projections by 1 percentage point for advanced economies and by 1.5 percentage points for emerging economies.

Inflation is also projected to hit decade-highs in many countries, rising by 5.5% in advanced economies and to 9.3% in emerging economies (excluding Belarus, Russia, Turkey and Ukraine). The conflict will decrease economic output, while increasing budgetary pressures, particularly in EU countries hosting the most refugees.

More Companies Concerned About Cyberattacks Than Natural Disasters

More technology companies are concerned about ransomware attacks than any other threat, shows a new risk report from Marsh. Forty-seven percent of respondents say that a cyberattack that shut down their operations or their suppliers would be a catastrophic threat to their company — more than double the response to that question only two years ago.

Another one-third of respondents say a ransomware attack leading to a data breach would be catastrophic. Data breaches are also considered risky, even if they aren’t catastrophic; 83% of respondents said threats to data security and privacy are the top risks to their company. Companies are also concerned about natural disasters and geopolitical events — the number of people who consider a trade war a significant risk is five times higher than two years ago.

As the conflict in Ukraine increases the likelihood of cyberattacks, companies, governments and organizations have had to tighten their cybersecurity protocols or risk substantial harm. The pandemic was also a driver of increased cybersecurity, as firms updated their security controls to account for employees working from home.

What Do Consumers Cut Back On in a Recession?

High inflation in the U.K. has lowered consumer confidence and disposable incomes and raised the specter of a recession, reports Investment Monitor. Britain’s inflation rate hit a 30-year high in March at 7% and is expected to rise to nearly 9% later this year.

A survey by the Office for National Statistics (ONS) revealed that 87% of U.K. adults had seen their cost of living increase in the past month, up from 62% in November. Real incomes have also fallen by almost 2% since last year and are expected to fall another 2.3% this year, according to ONS. As a result, Brits are cutting back on spending, with over half reducing their spending on non-essentials, 45% cutting back on their energy use, and 33% spending less on food and other essential items.

The Bank of England has been under pressure to decrease inflation by raising interest rates without causing a recession.

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