Annotation.The paper analyzes the impact of Covid-19 on the global economy. Economies, financial systems and tightly interconnected supply chains have all come under pressure. The Covid-19 pandemic has generated a dramatic loss. The outbreak of the pandemic has had more of a significant negative impact on developing economies. All countries around the world are still trying to cope with the ongoing crisis created by the COVID-19 pandemic. The World Trade Organization reduced the global trade growth forecast for 2020-2021 and cited the coronavirus pandemic as the reason. The article shows that despite the restrictions caused by the pandemic, the world is in a recovery stage and many anti-crisis reforms have been implemented. Although the world trade system has improved in 2022, additional efforts are needed from all governments around the world.These efforts will be directed toward improving their economy and business environment.The three main elements that are vital to a successful trade recovery package are: (a) transparency, (b) cooperation and (c) the best use of the existing multilateral trade system framework. 

Keywords:World; Global Trade;Covid-19 Pandemic; Economic crisis; Anti-crisis packages. 

Introduction

In order to improve economic prosperity and to achieve political or economic goals, countries around the world are trying to immerse themselves in international trade. Each country is acutely aware of the importance of globalization and how it affects them.

Globalization determines the transformation of the economic system and business culture, which should ensure the improvement of the socio-economic condition of the population and the creation of conditions for sustainable development. [Shaburishvili Sh, 2017] In international trade the development of import-export of goods depends on social, economic and political factors, which jointly affect the main direction of international trade.

The COVID-19 pandemic created significant logistical problems and put many countries around the world at risk of disrupting their food supply chain. In order to eliminate the challenges, it was necessary to develop appropriate economic policy paradigms. [Kharaishvili E, 2020]

The COVID-19 pandemic reminds us that the world is a highly interconnected place and global problems require global solutions. To make countries’ economies stronger it is very important to promote trade. In addition to the importance of global trade, countries need easy access to medicine and other vital equipment for public health. Global economies, financial systems and tightly interconnected supply chains have all come under pressure. Factories have been shut down and traffic has been restricted in many countries. The health crisis of 2020-2021 had more of a negative effect on global economies than the 2008-2009 financial crisis.

According to a recent study by the Asian Development Bank, the outbreak of the pandemic will have a significant negative impact on developing economies in a number of ways. This includes a sharp decline in domestic demand, a downward trend in tourism and business travel and a weakening of the trade and industrial supply chain. [adb.org]

The International Monetary Fund (IMF) [IMF.org] estimates that after 2012 global trade increased by only 3% annually. The lowest rate of trade growth in the past three decades between 1985 and 2007 was about twice as fast. It should be stated that in the second half of the 20th century the reduction of international trade barriers and technological development actually changed the current trends of the world economy. From 1950 to 2017 the volume of world exports increased almost 287 times and the flow of foreign direct investment from 1970 to 2015 increased from 10 billion to 1.9 trillion dollars.

The World Trade Organization has reduced the global trade growth forecast for 2021 and cited the coronavirus pandemic as the reason. According to the WTO, the coronavirus resulted in the volume of world trade to decrease by 3%.

The World Trade Organization has identified two scenarios in advance. According to the negative scenario, the volume of world trade during 2020-2022 was expected to decrease by 13%. However, the WTO noted that these figures could be changed due to the impact of various events, such as a second wave of COVID-19, weaker-than-expected economic growth or trade restrictions. [un.org]

The economic crisis caused by the corona pandemic was mainly affected by the collapse of the production and supply chains of the three largest economies in the world: the United States, the European Union and China. China was the first country to experience the shock of coronavirus, then the U.S., which is the hub of a globalized economy, followed by the EU. [oecd.org/coronavirus]

The pandemic has affected the entire world. The global economic shock led to a crisis in the field of health, restrictions on international trade, a sharp reduction in foreign direct investment, a decrease in global production and employment. [UNCDAT 2020]

Global economic growth slowed down in 2019-2021. The World Bank Group estimated that global GDP would decline by 5.2% after a 2.9% increase in 2018. Global trade goods decreased by 0.1% and annual imports and exports decreased by 1.2% and 0.9%, respectively. [intracen.org/report]

In 2020, the Organization for Economic Cooperation and Development (OECD) economic outlook revealed a negative scenario. Despite efforts from aid packages most economies struggled into recessions and global growth decreased by almost 13%. The OECD stated the volume of global trade in goods declined by (- 5.4%).  In addition, according to the data of the World Bank by (- 9.5%), the data of the World Trade Organization by (- 9.2%) and in the report issued by the International Monetary Fund by (- 8.0%). [OECD 2020]

Although COVID-19 has had a significant impact on world economies, it is now vital to focus on supporting and sustaining global economic recovery. The OECD analysis will help governments as they consider priorities for action, both nationally and globally. Together they work to create a more sustainable, inclusive and stable global economy. [oecd.org/coronavirus]

One thing has become clear, the importance of maintaining constant trade flow. Trade became a global lifesaver requiring countries to cooperate to the best of their ability.

WTO forecast and reality: According to a new estimate by the World Trade Organization, world trade goods may grow by 8.0% in 2021, compared to 5.3% in 2020. Total global trade growth is expected to slow to 4.0% in 2022, which is below the pre-pandemic trend. World GDP at market exchange rates will grow by 5.1% in 2021 and by 3.8% in 2022. Trade in goods decreased by 7% in nominal US dollar terms in 2020 and exports of commercial services decreased by 20%. Falling oil prices in 2020 led to a 35% reduction and travel services were down 63% in 2020. [wto.org] 

World merchandise trade volume and real GDP, 2017-2022 annual % change

Source: processed by the author based on data from WTO for trade https://www.wto.org. 

The table clearly shows that most of the global import demand will be met by Asia, where exports are expected to grow by 8.4% in 2021. European exports will increase (8.3%), while shipments from North America will experience a relatively smaller increase of (7.7%). Strong forecasts for export growth in Africa (8.1%) and the Middle East (12.4%) depend on travel spending rising during the year, which will consequently boost demand for oil. Meanwhile, South America experienced weak export growth (3.2%), as did the Commonwealth of Independent States (CIS), including certain former and associate members (4.4%).

The downturn in global economic growth is mainly due to the trade restrictions imposed between the world's leading economies. These trade restrictions impacted a reduction in international trade and investment flows. A downward trend in the global economy may challenge investors' decisions about developing countries.

In 2019, the world economy recorded a decrease in total trade in goods by (-2.8%). In 2019, the total volume was 37.7 trillion US dollars and in 2018 - 38.8 trillion US dollars. Europe has the largest share (36.9% of total trade), followed by East Asia (23.3%) and North America (13.6%). [un.org]

The world recorded an increase of total trade in services by about 1.4% in 2019 compared to 2018. More specifically, in 2019 total services represented 11.8 trillion US dollars and in 2018 11.7 trillion US dollars. Total trade of the SDG regions in Europe has the largest share (47.2%) of total trade, followed by East Asia (14.9%) and North America (14.2%). [comtrade.un.org]

Global food exports increased by an average of 7% annually between 2000 and 2019. [wto.org] A downtrend in manufacturing has led to a decline in global exports of manufacturing services. The economic decrease combined with weak demand affected global manufacturing exports. As world economies became more globalized, global value chains took production to third world countries where lower costs or less skilled labor are used to obtain higher returns.

Today, despite the world being passed the peak of COVID-19, it is still difficult to make accurate estimates on the economic losses caused by the pandemic.

In order to mitigate the damage caused by the COVID-19 pandemic, the timely engagement of  world economies and the development of a well-planned and executed anti-crisis plan are critical. [idfi.ge] (IDFI) The anti-crisis package should be laser focused at assisting the most important sectors and vulnerable segments of the economy. 

Conclusion

At the beginning of 2020 the world faced a new challenge due to the spread of the coronavirus. The pandemic known as COVID-19 has created numerous risks and has had a negative impact on both developed and developing economies. [freiheit.org]

The covid-19 pandemic has generated enormous loses in global economies. The damage outcome by the Covid-19 pandemic can be assumed to be the greater than the damage caused by the Great Depression in 1930s and the financial crisis in 2008. Although the crisis caused by Covid-19 differs in its content and specific characteristics from the crises listed above, several conclusions can be drawn: the damage requires a timely response, the implementation of the right economic policy and the adoption of strategies to rehabilitate the economies. It is important to take under consideration the main three (3) elements vital to a trade recovery plan: (a) transparency, (b) cooperation and (c) making the best from the existing multilateral trade system framework. [uncdat.org]. 

References:

1. Shaburishvili Shota., 2017, Peculiarities of inclusive business development in the conditions of globalization. Scientific-practical magazine: Globalization and business. (In Georgian)
2. Kharaishvili Ether., 2020, The impact of modern challenges of globalization on the development of the food market. Challenges of globalization in economy and business. 5th International Scientific Conference. A collection of works. (In Georgian)
3. Asia Development Forecast 2020 Economic Trends and Forecasts in Asia: Central Asia, Georgia. www.adb.org/ (In Georgian)
4. World Economic Outlook Database, April 2021". IMF.org. International Monetary Fund. Retrieved May 10, 2021.
5. OECD Policy Responses to Coronavirus (COVID-19). COVID-19 and international trade: Issues and actions. Updated 12 June 2020. https://www.oecd.org/coronavirus/policy-responses/covid-19-and-international-trade-issues-and-actions-494da2fa/
6. International Trade Centre. ITC’s   Annual Report 2019 https://www.intracen.org/
7. UNCDAT 2020, COVID-19 Outbreak: Implications on Corporate and Individual Insolvency.
8. International Trade Statistics Yearbook, 2019. Vol. I. Trade by Country. United Nations. United Nations. New York, 2020. Department of Economic and Social Affairs. Statistics Division 1 UN Comtrade database.  https://comtrade.un.org
9.  Friedrich Naumann Foundation for freedom. New Economic School-Georgia. Economic policy for the crisis period. Arguments for the economic recovery of Georgia in the background of the COVID 19 pandemic. Feb., 2020. https://www.freiheit.org/ (In Georgian)
10.  Review of the anti-crisis plan. IDFI Institute for Freedom of Information Development. https://idfi.ge/
11. www.un.org
12. www.uncdat.org/
13. https://www.wto.org/