In this article Giovanni Zanni, Chief Euro Area Economist, outlines how euro area trade has coped with the coronavirus crisis relative to the rest of the world.
After slumping earlier this year, international trade volumes started to pick up in June and continued to do so in July and August. Global trade volumes are still down from their pre-coronavirus levels, but the recent upswing means they seem to be closing the gap faster than in the aftermath of the 2008–09 crisis.
Asia has been the main driver of the recent rebound, with China and a number of other countries showing levels of trade activity similar to or even higher than at the beginning of the year. What’s more, surveys suggest that global trade momentum looks poised to bounce back to pre-coronavirus levels relatively swiftly.
Why has trade recovered so quickly? This time around the slump has been arrested earlier and the rebound seems to have been faster and stronger than during the global financial crisis. The swift policy response across the world and the less trade-intensive nature of the current slowdown have helped.
Global trends: A "V-Shaped" recovery from the recent crisis
Source: National sources, NWM; Note: Global Trade Value estimated based on data from national sources of individual countries.
But what about the euro area, where trade fell more sharply than elsewhere at the start of the crisis?
Trade trends are improving here too. Having already started to fall in Q1, euro area exports and imports slumped by around 20% in Q2, but the data suggest that monthly trade has already made up about 50% of what it lost at the start of the pandemic. Intra-euro-area trade, which had fallen more than external trade, has rebounded particularly impressively as pandemic-related restrictions were eased more quickly in Europe than elsewhere.
General euro area trends – recovering since May
Source: Eurostat, NWM
If we look at where European exports end up, we see that trade with the US has fallen the most since the crisis began. Meanwhile, figures detailing where China’s imports come from (up to September) reflect a rebound in exports from the euro area, with Italy – surprisingly – the leading individual country.
While the first half of 2020 saw Chinese imports fall sharply (China, of course, was the first country to be hit by coronavirus), German, French and Italian exports to China have improved in recent months, and especially in September. UK exports to China, however, have still not grown, although they are now falling less sharply than before.
Countries: China's imports from... improved in September
Source: Haver analytics, NWM
Despite the recent resurgence in coronavirus cases, we still expect euro area exports to improve further in the final months of 2020. The manufacturing new export orders component of the PMI confirmed a strong pace of expansion in September, and surveys overall suggest that manufacturing and trade in manufactured goods are likely to continue to normalise into the autumn – even if they do so more slowly than before.
It’s unlikely that new coronavirus restrictions will limit the production (and consumption) of goods significantly this time, while around most of the world – and in Asia in particular – the pandemic situation is improving, supporting demand for European goods. The (much smaller) share of global trade related to services is expected to make little progress, however – at least until Q2 next year.