WTO Details 30% Drop in Global Services as Tourism Flops

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The World Trade Organisation – WTO – has released figures detailing a 30% drop in the global services trade as the tourism sector continues to be impacted by the COVID-19 pandemic. 

The WTO released statistics for the second quarter of 2020 which shows a significant reduction in the global trade of services, details a 30% drop when compared to figures from the same time in 2019. It marks the steepest contraction of the services trade sector recorded by the WTO, on the back of an unprecedented decline in tourism, with the second quarter of 2009 – during the Global Financial Crisis – taking second place with a second-quarter drop of 17%. 

Authors of the report state that the global services trade sector is made up of the tourism, construction, manufacturing, computer, financial, telecommunications & insurance service sectors, as well as the legal, management, accounting and advertising industries. 

On a region by region basis, North America recorded a drop in service trade of 32%, Asia dropped by 29% and Europe recorded a 26% year-on-year reduction in the trade of services. The WTO says that judging by preliminary estimates, Latin America and the Caribbean are set to record a 46% drop in services, with the least developed countries of the world potentially recording drops as high as 65%. 

The organisation says that “declines in services trade were recorded across all regions and most service sectors except for computer services, which was buoyed by a shift towards remote working and a rising demand for digitalization.” 

The major driver of the drop in global services trade was by far the tourism industry, which makes up 43% of the total services trade sector. International traveler expenditure was down 81% for the second quarter of 2020 amid travel restrictions and domestic lockdowns, which caused another 31% drop in the rate of transport. 

The WTO says that “the drop in transport matches declines recorded during the financial crisis (-29%), but the underlying reasons are different. Unlike in 2009, the decrease in transport services trade is driven predominantly by restrictions to passenger transport and a fall in global demand for international travel, not by sharp declines in freight shipping.” 

The World Trade Organisation continued to explain that “sectors requiring physical proximity fell steeply such as construction (-25%) and audio-visual, artistic and recreational services (-14%). Architectural and engineering services, closely linked with construction, and other business services were also down 11%. Contract manufacturing services also collapsed (-22%), with factory production halting in many countries.” 

The authors say that the economic uncertainty has also impacted the number of research and development services being contracted, with exports of R&D dropping 8% in the United States. and 11% across the European Union. 

The financial services industry managed to escape the second quarter of 2020 relatively unscathed, which the WTO says emphasises “the very different nature of this crisis from the financial crisis, when exports dropped by 20% in the first quarter of 2009.” The WTO says that “recent growth in this sector is even understated due to the dollar appreciation; for example, intra-EU trade in financial services rose by 2% in Euro terms, while it stagnated in dollar terms.” 

The computer services industry was the only services sector to report significant increases in activity and exports after it reported a 4% increase on the back of digitalization and workforces increasingly moving to an online and remote means of operating. The WTO says that “this trend has been further accelerated by the pandemic.” 

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