SLUGGISH activity at ports around the Greater China region has been one of the most visible effects of the downturn in world trade in 2019, according to a research paper issued by Oxford Economics. But port operators – as well as shipping lines, logistics providers, and others engaged in the sector – may now be able to look forward to gradually improving conditions in 2020 and beyond.
“In our view improving global business sentiment and a range of local factors should mean that world trade starts to recover from mid-2020 onwards,” the paper said.
“Our forecasts indicate global trade growth picking up to 2.5% in 2021 and 3% in 2022, driving a similar rate of growth in the container sector.”
The outlook is uncertain, though, especially with respect to trade policy. While the phase one trade deal offers hope of better relations ahead, the risk of further barriers being erected – especially between the United States and China – remains.
“In our view, a re-escalation of trade stresses would trigger a slump in world trade and container throughput in the coming couple of years. Conversely, should trade tensions ease, the pace of trade and container growth through 2020-2021 could be more than doubled,” the paper said.
However, even in an upside scenario the pace of recovery will be noticeably weaker than that seen after previous slowdowns. This is because the trade intensity of global growth is falling at a time when China is also restructuring its economy.
Latest data offers a mix of reasons to be both hopeful and wary about world trade prospects in 2020. Surveys point to further contraction in trade volumes in early 2020, consistent with the view that the full impact of barriers erected in 2019 has yet to feed through. But underlying conditions look to be improving.
“Our global sentiment indicator finds overall business sentiment improving across the economies, while also seeing reasons for optimism on consumer confidence and evidence that inventories might be due for a rebound,” the paper said.
What could substantially improve the outlook? A reduction in trade tensions, particularly those between the US and China, which have disrupted supply chains across the region.
“Our latest Global Scenarios Service simulates a scenario in which President Donald Trump takes a more clearly constructive tone towards China and unwinds recent tariff hikes. In response, investor sentiment around the world improves, supporting business confidence and ultimately boosting consumer incomes,” the paper said, adding that such a scenario is increasingly viewed as the most plausible upside risk for the world economy.
Against this backdrop, global growth could rise 0.7ppts faster than baseline in both 2020 and 2021, accelerating global trade by as much as 2ppts relative to the baseline.
For the trade-intensive economies of China, Hong Kong, and Taiwan, the boost would be even greater, lifting goods trade (and potentially container throughput) by as much as 5ppts versus the baseline by 2021.