Remember when the millennium bug was all we had to worry about? Cast your mind back about 20 years. As the seconds ticked down on 31 December 1999, many businesses around the world – from airlines to banks and power plants – were holding their breath over fears about the so-called “millennium bug”. Were those fears about to be realized? For those of you who may have forgotten now, what was also known as the Y2K bug referred to a computer programming glitch that was expected to cause widescale disruption at the start of the new millennium as the year changed from 1999 to 2000.
As it turned out, there was no widespread havoc or disruption, no global meltdown. Many companies, fearing the worst, had taken steps to correct their systems to minimize potential damage and businesses kept trading, international markets didn’t crash. Indeed, months into the new millennium, the economic outlook was not only good but also, according to the International Monetary Fund, GDP growth was projected to increase in all major regions of the world, with the US economy the key driver.
Onset of digital age
At the time, the Internet was still in its relative infancy and the digital era was barely a glow on the horizon. Twenty years on, however, as our ever-more globalized and interconnected world has been moving swiftly into the so-called Fourth Industrial Revolution and embracing its new technologies such as artificial intelligence, robotics and quantum computing, another bug – a “low-tech” one, which we weren’t prepared for – has unleashed widespread disruption, anxiety and uncertainty. The COVID-19 pandemic has caused over five million deaths, mass unemployment and the many start-stop-start national lockdowns to curb the spread of the virus have put the brakes on international trade.
According to the London-based research firm Capital Economics, disruption caused by COVID-19 is expected to hold back growth in the world economy for the first time since 2009. This bleak forecast is echoed by the World Bank, which says the global economy is heading for the worst recession since the Second World War. The bank says countries that rely heavily on global trade, tourism, commodity exports and external financing, and where the pandemic has had a huge impact, are hardest hit. These include emerging markets and developing economies. The pandemic is taking a heavy toll on countries with weaker healthcare systems.
Estimates in a Global Trade Update from UNCTAD (the United Nations Conference on Trade and Development) have noted some “green shoots” in economic recovery, notably China, but Secretary-General Mukhisa Kituyi warns that “the uncertain course of the pandemic will continue aggravating trade prospects in the coming months”. According to UNCTAD, a 5 % drop in world trade in the third quarter of 2020 compared to 2019 is an improvement from the 19 % decline in the second quarter but insufficient to pull trade out of the red.
The uncertain course of the pandemic will continue aggravating trade prospects.
Global trade outlook
The outlook for global trade growth is far from rosy for developing countries that rely on export opportunities. A report on COVID-19 and international trade by the Organisation for Economic Co-operation and Development (OECD) says: “In an unprecedented global health crisis, trade is essential to save lives and livelihoods; and international cooperation is needed to keep trade flowing.” The OECD’s Economic Outlook, December 2021 highlights the risks and uncertainty that might hold back global economic recovery and emphasizes that “restoring confidence will be crucial to how successfully economies can recover”.
The pandemic has unfolded against a backdrop of increased trade tensions between some of the world’s largest economies, further deepening the uncertainty over global trade. As the European Central Bank notes in its Economic Bulletin: “The slowdown in global investment and trade has occurred in an environment of rising trade tensions between the United States and China, slowing Chinese demand, (geo-)political tensions, Brexit and idiosyncratic stresses in several emerging economies, with rising uncertainty magnifying the negative impact.”
In this time of great uncertainty, one thing that is certain, according to an article published by the World Economic Forum (WEF) in collaboration with policy institute Chatham House, is that “global trade policy is not going back to the consensus that prevailed over the past few decades”. As Megan Greene, Dame DeAnne Julius Senior Academy Fellow in International Economics at Chatham House, writes: “As long as the limbo persists, and it probably will for at least a few more years, trade issues will remain a risk for the global economy.”