International trade soared as the world recovered from the Covid-19 induced economic crisis. In 2022, the value of traded goods and services was 24 percent higher than in 2019, before the pandemic struck. But in 2023, trade hit a wall, barely eking out a 0.1 percent gain over the previous year, as underlined in the World Bank’s It took strong growth in services trade to make up for the first decline in goods trade in 20 years outside of a recession.
Where do we go from here? The World Bank’s latest report predicts that trade will recover slightly in 2024 and 2025 as pre-pandemic patterns reassert themselves. Trade is expected to mirror projected weak growth in global output and investment.
On the other hand, pessimists might say that 2023 marks the beginning of a new normal for trade in a world best by geopolitical tensions, climate-related shocks, and increased protectionism in advanced and large economies. That dark scenario spells trouble for developing countries, which need trade, foreign investment, and participation in global value chains to eliminate poverty and ensure their green transition.
Yet there are grounds for optimism.
The first is the observed resilience of global and regional value chains, which played a many developing countries leverage trade for development in recent decades. While sanctions imposed on Russia and US efforts to decouple from China reduced direct trade between these blocs, indirect and regional trade often compensated for the decline (Figure 1), and developing countries kept on trading with the various blocs. This resilience shows that it’s not easy to completely unroll global supply chains built over decades to best serve firms and customers across the globe amid various shocks.