China’s modest decline in exports was helped by the fact that the COVID-19 crisis was quickly brought under control, certainly relative to most other major economies. China’s industrial production also outperformed on a relative basis, with the Chinese government providing the sector with significant support, including a sizeable further increase in infrastructural activity.

There is also a strong and important relationship between global trade (industrial production) and industrial commodity prices. Unsurprisingly, industrial commodity prices fell by 7.3% in dollars in the first five months of 2020, although there was a wide dispersion in performance between energy prices, which were down almost 50% in dollars, and the index of precious metal prices, which rose by roughly 12.5% over the same period.

The collapse of global trade in early 2020 had a severe impact on SA’s export performance, which fell by just over 23% year-on-year in dollars during the first five months, despite the rise in precious metal prices. This, in turn, substantially weakened mining (more than 50% of the country’s exports are commodities) and manufacturing output, contributing substantially to SA’s worst economic performance in more than 60 years. Although the fiscal and monetary authorities provided some support to the economy during this phase of the COVID-19 crisis, including through lower interest rates, increased social payments and credit support for the business sector, these measures did very little to compensate for the severity of the COVID-19 lockdown restrictions that were applied in most major economies.

Early 2021: Global trade revival, despite slow vaccine roll-out

Remarkably, while the speed and magnitude of the collapse in global trade in early 2020 was devastating, the subsequent recovery has been even more impressive. Monthly data provided by the Netherlands Bureau for Economic Policy Analysis (CPB) highlights that both global trade and industrial production has recovered sharply, reaching a record high, in volume terms, during January 2021. This recovery, which began in June 2020, has seen world export volumes increase by a total of 26.4% in the eight months from June 2020 to January 2021. At the same time, global industrial production has rebounded by 17.3%, also in volume terms. Unsurprisingly, during this period, world shipping activity has rebounded and global industrial commodity prices have risen by a spectacular 71% (in dollars), helped by a 57% increase in metal and mineral prices, as well as a 104% rise in energy (oil) prices.

From SA’s perspective, while the rise in energy (oil) prices is unfortunate, pushing the domestic petrol price to a record high in April 2021, it is encouraging that every other major commodity price index has also risen convincingly, providing a very welcome uplift to export performance.

Most major economies have experienced a very rapid rebound in international trade since the middle of 2020, suggesting that the recovery in global trade has broadened out considerably in recent months. There is now a global revival in international trade, which has been helped by the easing of the more severe COVID-19 lockdown restrictions around the world. This is despite many countries still struggling to make significant progress with the distribution of the COVID-19 vaccine, including SA. 

It is heartening to see that the Global Trade Uncertainty Index has fallen back down to historical lows. This suggests that the extreme anxiety about trade tensions between the US and China that characterised much of President Trump’s term in office has dissipated, together with concerns surrounding the impact of Brexit on Europe and the UK. This does not mean that international trade relationships are back to ‘normal’, but it does suggest that the extreme uncertainty regarding the world’s most important trade links, especially between the US and China, have eased considerably. This should lead to a further and ongoing improvement in international trade.

Trade rebound benefits DM and EM

It is also worth highlighting that the rebound in global trade and industrial production over the past eight months has benefitted both developed and emerging economies, although China has experienced a particularly large pick-up in both industrial production and exports. For example, since the middle of 2020, China’s export volumes have risen by 38.1%, allowing it to easily surpass its previous peak level of exports, as well as reach a record level of manufacturing output. Industrial production and international trade remain a vital component of China’s economic success, although the government is trying to boost consumer activity to ensure that the economy achieves a more balanced set of key economic drivers. 

The US has also experienced a strong rebound in exports, which have grown by 38.4% since the middle of 2020, but its industrial output remains below the peak that prevailed prior to the onset of COVID-19. This is partly because the US has become more import-intensive, recording a 24.9% increase in the volume of imports since the middle of 2020. The euro area has also experienced an impressive gain in exports – up 27.5% since mid-2020 – but has struggled to fully revitalise industrial production due to weaker domestic economic activity. Japan’s exports have risen by 36.2% over the same period, but its industrial production remains moderately below the 2019 level of activity. 

Unfortunately, the pick-up in exports out of Africa since June 2020 has been disappointing, rising by only 5.3%. Equally, the rebound in industrial production within the African continent has also lagged most of the other economic regions. This partly reflects the fact that the COVID-19 pandemic impacted this region later than most other parts of the world. In addition, the region lacks the financial resources to aggressively procure and distribute the COVID-19 vaccine.

Overall, the rebound in international trade since the middle of 2020 has been broad-based and has far exceeded the expectations of most analysts. Given the latest round of fiscal stimulus in the US, as well as persistently low interest rates within most major economies and relatively low levels of inventories throughout the global supply chain, the current revival in international trade and industrial production is likely to continue throughout 2021 and into 2022. 

Critically, from SA’s perspective, the revitalisation of international trade should continue to support the global commodity price cycle, providing the country with vital export revenue as well as a welcome boost to tax receipts. Hopefully, the policy authorities can use this windfall as a catalyst to urgently start to revitalise rail and port infrastructure, which is critical to the sustained success of SA’s international trade.