The COVID-19 pandemic has resulted in unprecedented falls in services trade for most economies. Services exports from advanced economies contracted by28% y-o-y in Q2 2020, steeper than the 25% decline in goods exports from these markets, a HSBC global report said.
Emerging markets have also experienced steep contractions in their services exports with few signs of revival amid ongoing travel restrictions. Thailand’s services exports tumbled by over 70% and Malaysian services exports were down 55% y-o-y in the second quarter.
Unlike during the Global Financial Crisis when services trade demonstrated remarkable resilience compared to goods trade, services flows are bearing the brunt of the trade shock this time around.
“And with the number of COVID-19 infections once again gathering pace, particularly in the northern hemisphere which will soon be heading into winter, it is unlikely that international travel will rebound anytime soon,” the report further adds.
On the other hand, the current situation has increased the relative importance of other types of services such as telecoms, computer, financial and entertainment services, which tend to be delivered electronically and are more amenable to digitisation. In fact, over 60% of global services exports are traded digitally.
“We expect the COVID-19 pandemic will lead to a two-speed recovery in services trade, whereby international travel is likely to remain largely suppressed due to travel restrictions, while digital services may recover more quickly. However, growth in digital services is unlikely to fully offset the collapse in travel in the near term. This suggests that services trade is likely to remain well down on pre-pandemic levels for some time to come, for most economies”.
On the other hand, digitally-enabled and R&D services could see a post-COVID boost, as businesses look to build resilience into supply chains and re-shore some production from overseas. Tackling barriers to digital trade and improving digital infrastructure will help support greater digital flows across borders, and could help speed up the recovery in global services trade.
Global services exports have expanded rapidly over the past decade, growing from USD3.6trn in 2009 to USD6.1trn in 2019. However, the COVID-19 pandemic has significantly disrupted global services trade. And unlike the trade shock in 2009, this time around services trade has fallen by more than goods trade, for most economies.
Similarly, most emerging markets also experienced steep contractions in their services exports, likely due to the importance of tourism for these economies.
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