Sharp declines in trade and FDI but Asia-Pacific performs better than rest of the world in 2020

According to the new Asia-Pacific Trade and Investment Trends briefs issued by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) today, global international trade value is estimated to dip by 14.5 per cent in 2020.

Despite facing a sharp decline in trade, Asia and the Pacific is expected to perform better than the rest of the world during 2020.

The region’s prominence in merchandise trade is expected to rise to an all-time high this year accounting for 41.8 per cent of the world’s exports and 38.2 per cent of global imports. In 2021, merchandise trade volumes are expected to rebound by 5.8 per cent and 6.2 per cent of real exports and imports respectively.

ESCAP however warns that the path towards full trade recovery remains highly uncertain.

Macroeconomic conditions remain unfavourable for many Asia-Pacific economies with high unemployment rates, deflation, indebtedness and geopolitical tensions among the structural factors hindering the recovery of countries.

For small economies, the path towards full economic recovery may also be challenged by the potential permanent damage done to the travel and tourism industries, which are their major sources of income and employment. These downside pressures signal a potential sluggish recovery in 2021.

“The pandemic has a devastating effect on developed and developing economies alike, threatening to bring possibly millions of people back to poverty and unemployment. These people will not only need more aid, but also more trade,” said United Nations Under-Secretary-General and Executive Secretary of ESCAP Ms. Armida Salsiah Alisjahbana. “I urge countries in the region to work towards developing a better set of trade rules that are resilient in times of crisis and stimulate sustainable economic recovery for inclusive and greener economies.”

COVID-19 has also had an immediate and severe effect on foreign direct investment (FDI). While data is still being collected on all forms of FDI, quarterly figures from announced greenfield investments clearly demonstrate how hard the region has been hit. In the first three quarters of 2020, greenfield FDI dropped by 40 per cent compared to the same period in 2019. Lockdown measures, including the physical closure of businesses, manufacturing plants and construction sites, were responsible for delayed and canceled investment projects in 2020.

FDI is expected to remain below pre-crisis levels throughout 2021. The outlook beyond 2021 is highly uncertain and dependent on the duration of the crisis, the effectiveness of policy interventions to stimulate FDI and navigate the socio-economic effects of the pandemic, as well as geo-economic tensions. The recent signing of the Regional Comprehensive Economic Partnership, however, may help FDI bounce back in the recovery period, especially for smaller and least developed countries in the group.

The trade briefs also highlight that over the medium-to-longer term, two main trends will affect trade – global value chain (GVC) restructuring and the digitalization of the global economy. These trends are likely to cause significant structural shifts, both across and within economies. To address these challenges, ESCAP underscores the necessity of complementary policies on social protection and education as well as in other areas covering new issues such as data protection and privacy, cybersecurity, e-commerce and other electronic transaction tax. This will be vital to allowing Asia-Pacific economies to fully capture the benefits from inclusive and sustainable digital trade and digital FDI growth.

The four new Asia-Pacific Trade and Investment Trends briefs are part of an annual series produced by ESCAP to support policymakers develop short-to-medium term plans to mitigate adverse impacts from emerging risks and uncertainties in the global and regional economies. They also aim to maximize the potential of trade and FDI to contribute to sustainable development in an uncertain and changing trade and investment environment.