Covid-19 could impact Gobal Index of Trade Health up to minus 32%
Global Index of Trade Health delivers prognosis for third quarter
Global trade fell 14.8% in the second quarter of 2020, according to Tradeshift, but evidence of an upward curve in June suggests the impact of the COVID-19 pandemic could bottom out at the lower end of the 13% to 32% decline predicted by the World Trade Organization.
Tradeshift’s Global Index of Trade Health, released Wednesday, used analysis of business-to-business transaction data to present a week-by-week picture of trade activity across global supply chains. Tradeshift said more than 1.5 million buyers and suppliers use it to place orders and process invoices.
United Kingdom suffering biggest trade decline amongst Western Economies
The World Trade Organization said when it released its prediction in April that the “wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008-09.
According to the newly released Tradeshift report, the United Kingdom experienced the biggest drop in trade among Western economies during Q2, with transaction volumes falling 23.1%. Transaction volumes across the eurozone fell 21.9%, while activity in the United States was down 16.1%.
China, which had the most significant impact on trade in Q1, saw trade activity rise by 31.8% in Q2. Tradeshift said transaction volumes in China surged by an incredible 430% when factories reopened at the end of February.
China’s economic bounceback cannot absorb global downtrend figures.
Activity rose a further 14% as lockdown restrictions began to ease in April, but this momentum has begun to plateau, Tradeshift said, noting that average weekly transactions in China have fallen 8% since the week of June 15. And as impressive as China’s bounceback has been, trade activity in the last two weeks of June remained 22% lower than the levels seen on the Tradeshift platform in Q4 of 2019, it said.
“China’s bounceback provides a useful indicator of what the shape of recovery could begin to look like as other countries start to bring the spread of the virus under control,” said Tradeshift CEO Christian Lanng. “A huge domestic market gives China certain advantages in terms of the speed of its recovery. But the interconnected nature of global supply chains means that not even China can fully recover in isolation. The whole ecosystem needs to be in good working order. Right now that is not the case.”
Economic recovery is going slow as invoice volumes drop 19% in Q2
Tradeshift said this week that for economies in the West, the “green shoots” of recovery have begun to emerge, but the overall picture remains volatile. While order volumes are trending upward, payments to suppliers are not keeping pace with the recovery. Tradeshift said invoice volumes across the U.K., European Union and United States fell by 19% as a whole in Q2. And while activity is picking up going into Q3, it is doing so slowly, according to the report.
With many suppliers running low on cash after a prolonged period of inactivity, lack of working capital flowing through supply chains could well prevent these suppliers from fulfilling orders — putting a brake on recovery, Tradeshift said.
“Trying to restart supply chains without fast and predictable access to working capital is a little like trying to start a car without any gas in the tank. It doesn’t get you very far,” Lanng said. “Government stimulus has done a great job insulating businesses from the very worst of a lockdown. But as we enter a new chapter in the pandemic, we need to start looking at fresh ways to unlock liquidity and get it flowing quickly to cash-starved suppliers.”