Services trade drops by 30% as COVID-19 ravages travel

Global trade in services in the second quarter of 2020 plunged by a record 30% year-on-year, with the travel sector particularly hit hard by COVID-19 and associated restrictions. This is according to the latest World Trade Organisation report for September.

Declines in services trade were recorded across all regions and many services sectors, except for computer services, which was buoyed by a shift towards remote working and a rising demand for digitalisation.

The latest contraction in services trade is the steepest since the financial crisis when global commercial services trade plummeted by 17% in the second quarter of 2009. Services exports in the second quarter of 2020 were down 32% in North America, 29% in Asia and 26% in Europe on a year-on-year basis. Preliminary estimates suggest even sharper declines for Latin America and the Caribbean (-46%) and a drop of 60-65% for least-developed countries.

Tourism was particularly hit hard, with international travellers' expenditure down by 81% and transport down by 31%. The two sectors make up 43% of services trade.

The drop in transport matches the decline 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.

Other services were affected unevenly by the pandemic. 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 by 11%. Contract manufacturing services also collapsed (-22%), with factory production halting in many countries. Uncertainty about the economic context also had an impact on research and development services, with exports from this sector declining by 8% in the US and 11% in the European Union.

Financial services were only marginally affected, emphasising the different

nature of this crisis from the financial crisis, when exports dropped by 20% in the first quarter of 2009. 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.

Computer services, the fastest growing in the last decade, was the only one to record an increase in exports.