Trade performance will be key to the recovery of GDP

Outlook

The vast majority of the world’s population was locked down for much of the second quarter (April-June), plunging the major economies bar China into recession.

India and the United Kingdom would be in deeper recession without net trade contributing positively (exports falling less than imports). Non-tourism services including finance and business services are key to these countries’ GDP and are outperforming tourism and manufacturing.

The contribution of net trade has fallen notably in Germany, Japan and South Korea due to their exposure to supply chain disruption and lower manufacturing demand.

Differences in the depth and shape of recession will inform policymaking. Goods exporting powers will seek new markets while governments who ran furlough schemes will aim to revive consumption swiftly.

Impacts

• Asia-Pacific nations saw better April-June GDP figures than elsewhere, but survey and trade data imply a sluggish recovery for the region.
• The currencies of economies that recover relatively strongly may strengthen but currency weakness will aid exporters in weaker economies.
• Net trade cut April-June GDP in tourism-reliant nations such as Spain and will subtract more in the peak July-September travel season.