The Economic Co-operation and Development (OECD) has outlined two scenarios for COVID-19 economic fallout: “Single Hit,” in which the virus continues to recede and remains under control, and “Double Hit,” in which a second wave of infections erupts by year-end.
Both forecasts are ugly. “By the end of 2021, the loss of income will exceed that of any previous recession over the last 100 years outside of wartime, with dire and long-lasting consequences to people, firms and governments,” warned OECD Chief Economist Laurence Boone.
In Single Hit, global GDP falls 6% this year and U.S. GDP drops 7.3%. In Double Hit, 2020 global GDP plunges 7.6% and U.S. GDP 8.5%, while 2021 recoveries are much slower.
The full-year impact on global real trade growth is expected to be significantly more severe than the impact on GDP: -9.5% for global trade under Single Hit, -11.4% under Double Hit. The Double Hit scenario posits a dramatically slower global trade recovery in 2021, with growth of 2.5% compared to 6% under Single Hit.
The more systemic threat to trade — particularly for container shipping — is the risk that the pandemic could convince companies to bring sourcing back home. “The crisis has demonstrated the vulnerability of domestic production to sourcing inputs from distant locations through complex global value chains [GVCs],” said the OECD.
“The latest data shows that foreign value added in production exceeded 50% in most economies and areas,” it continued.
The risk is that GVCs will “be shortened to reduce input sourcing risk and enhance resilience,” said the OECD, which noted that this threat “comes on top of other threats to international trade” from rising tariffs, in particular, the trade war between China and the U.S.
As Boone summed up the trade threat: “Economies are diverging. The pandemic has accelerated the shift from ‘great integration to ‘great fragmentation.’”
Ironically, China has emerged as an even greater source of U.S. containerized imports as a result of a global pandemic that originated in China.
FreightWaves SONAR tracks the seven-day moving average of the number of U.S. Customs filings. The latest data confirms that the filings for imports from China are outpacing the national average.
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