World trade in shock as Putin invades Ukraine
Asjadul Kibria |
February 26, 2022 9:09:26 PM
World trade has finally returned to pre-pandemic levels. The estimated value of global trade in goods and services reached $28.5 trillion in 2021, registering an increase of 25% compared to 2020 and 13% compared to 2019. The year 2019 was the last year before the Covid-19. The February 19 pandemic hit and 2020 was the year the deadly virus spread across the globe and nearly crippled the global economy. The United Nations Conference on Trade and Development (UNCTAD) unveiled the preliminary estimate for world trade in the third week of this month.
The UNCTAD estimate showed that the annual resurgence in world trade over the past year was largely boosted by the accelerated growth in merchandise trade in the last quarter of 2021. Final data for the last quarter, however, are not not yet available. The preliminary figure is estimated at $5.8 trillion for trade in goods and $1.6 trillion for trade in services in the last quarter of 2021.
The strong rebound in global trade over the past year was “largely the result of rising commodity prices, the easing of pandemic restrictions and a strong recovery in demand thanks to plans to economic recovery”. Nevertheless, UNCTAD also forecast that “as these trends are expected to subside, international trade trends are expected to normalize in 2022”. Normalization means there won’t be a big jump in global trade, although annual trade growth could show double-digit growth. But trade growth above 20% is not a normal phenomenon.
Meanwhile, the World Trade Organization (WTO) Merchandise Trade Barometer showed “a loss of momentum in trade in early 2022 after the strong rebound in trade volumes last year”. Although it is too early to predict the trend of world trade in the first quarter of the current year, the WTO index also suggested that “trade in goods could recover soon even if it remains below the short-term trend. This is broadly supported by UNCTAD which now forecasts that trade growth will continue to slow in the first quarter of 2022. “Positive growth rates are expected for both trade in goods and services, albeit only marginally. marginal, keeping trade values at similar levels to the fourth quarter of 2021,” the UNCTAD report said.
The rebound in global trade is largely reflected in the trade of developing countries which outperformed developed countries in the last quarter of 2021. In addition, South-South trade growth was “above the global average”.
Bangladesh can be seen as an example of the resurgence of global trade. The country’s international merchandise trade reached $110 billion last year, registering a growth of 34.50 percent from $86.40 billion in 2020. Bangladesh faced a decline of 12.20 % of its trade with the rest of the world in 2020 due to the pandemic. It is now hoped that, taking advantage of the strong recovery in global trade, Bangladesh will be able to sustain strong export growth in the current year.
The continuation and normalization of trade growth is, however, linked to several conditions. UNCTAD has identified five factors that have influenced and directed trade growth during the current year. These are: slower-than-expected global economic growth, persistent challenges to global supply chains, trade agreements and regionalization trends, the transition to a greener global economy, and growing concerns about the sustainability of debt.
Now the sixth factor has also appeared on the scene – the Russian invasion of Ukraine. Over the past two months, there was a clear indication that Vladimir Putin, the President of the Russian Federation, was going to attack Ukraine. Last week, the Russian army finally attacked Ukraine and is now advancing inside Ukraine. Putin tried to validate his actions by claiming the attack was necessary to protect civilians in eastern Ukraine, which is a false claim. He also accused the United States and its allies of ignoring Russian demands to prevent Ukraine from joining the North Atlantic Treaty Organization (NATO) and security guarantees. He further claimed that Russia had no intention of occupying Ukraine but would act to “demilitarize” and “denazify” the former Soviet Union state.
Putin’s decision shocked the world economy which is still struggling to achieve a better growth rate. The price of oil jumped above $100 a barrel for the first time since 2014 and stock markets in Asia, Europe and America fell. As Western countries have also started to impose a series of economic sanctions on Russia, the situation is likely to worsen further. The global supply chain will be disrupted and the cost of inputs will increase. It will also push up inflation which is already hurting most countries. All this will deal a heavy blow to world trade in the first quarter of the current year and the snowball effect will continue until the second quarter, even if the Russian invasion is stopped within a week.
Global shocks will also be transmitted to Bangladesh through trade channels. While the government is currently considering reducing the burden of subsidies, there will be an upward adjustment in utility prices. These will drive up the cost of Households and Manufacturing Units. Now, rising prices of raw materials and intermediate goods in the international market due to supply chain disruption will increase the cost of imports to Bangladesh. This will further increase the cost of domestic production.
Again, the prices of various commodities will also rise as carriers have to increase fees due to diversion of certain routes and higher insurance premiums. In fact, food supplies will be disrupted in Europe and parts of Asia. Wheat and maize prices are already soaring. Russia and Ukraine jointly control more than a quarter of the world wheat market. These two countries are also major shippers of metals and some other raw materials.
Thus, the global economy has once again entered another phase of inflationary pressures as well as trade turbulence. Countries like Bangladesh will have to endure burns in various forms.