Services Weaken as COVID-19 Hits Global Economy

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By Obinna Chima

Growth in global services trade continued to weaken toward the end of 2019 as well as in the first quarter of 2020, according to the latest World Trade Organisation’s (WTO’s) Services Trade Barometer.

According to the report, the latest reading of 96.8 was down from the 98.4 recorded last September and well below the baseline value of 100 for the index.
This, it stated, suggesting below-trend growth in world services trade.

The indicator did not yet fully capture the economic impact of the COVID-19 virus and was likely to decline further in the coming months.
Among the component indices, the largest declines were in passenger air travel (93.5) and container shipping (94.3), growth of which was already moderating before the COVID-19 outbreak.

Both indices covered developments through January and may partly reflect early efforts to halt the spread of the disease, which intensified toward the end of the month.

According to the report, the drop in container shipping index was driven by lower shipping volumes in Asia, while the slowdown in passenger air travel was more broad-based, also covering North America, South America and Europe.
The global financial transactions (97.7) and ICT services (97.0) indices also dipped below trend, while the construction index (99.8) appears to have held steady.

The global services Purchasing Managers’ Index (96.1) was the most forward-looking barometer component, reflecting expectations that COVID-19 is likely to continue to weigh on services trade in the near-term.

An approximate measure of the volume of world services trade showed that year-on-year growth in services trade activity had fallen from 4.7 per cent in the first quarter of 2019, to 2.8 per cent in the third quarter.

The Services Trade Barometer highlighted turning points and changing patterns in world services trade. Unlike its counterpart for goods, the fluctuations registered by the services indicator coincide with movements in actual trade flows, rather than anticipating them.
Readings of 100 indicate growth in line with medium-term trends. Readings greater than 100 suggest above-trend growth while those below 100 indicate the opposite.

In a related development, in the face of the raging Covid-19, the Director General of the WTO, Roberto Azevêdo, has informed members and staff that access to the organisation’s premises would be restricted as from today.

“In light of developments related to the COVID-19 virus and after meeting with UN agencies and observers in Geneva, we have taken a decision to suspend all meetings at the WTO until the end of April 2020.

“Additionally, all WTO Secretariat staff (except on-site critical staff) are to work from home until the end of March 2020. This decision will be reviewed by the end of March,” he said.

The WTO said it was reviewing alternatives for arranging virtual meetings to enable members to participate remotely.

The raging Coronavirus, otherwise known as Covid-19, may cause Nigeria’s total revenue from crude oil export in 2020 to drop to between $14 billion and $19 billion, compared to $38.9 billion previously predicted, a United Nations Economic Commission for Africa (ECA) report has stated. The ECA, in a report titled, “Economic Impact of the COVID-19 on Africa,” stated that Nigeria’s gross oil revenue stood at N1.564 trillion as at the end of fourth quarter 2019.

The prediction was, however, predicated on crude oil price falling to $35 per barrel as well as Nigeria’s export of about 1.9 million barrels per day, a 50 per cent drop.

The report also estimated that Nigeria and other oil-exporting nations in Africa could record revenue losses of up to $65 billion due to a likely drop in demand for the commodity.

On the average, the report estimated that between 2016 and 2018, yearly export revenues from fuels for Africa were $166 billion, with the West Texas Intermediate (WTI) average yearly price for the period at $ 57.6.

It assumed an identical volume of fuels to be exported in 2020 was an average of same volume between 2016 and 2018, with average 2020 price at $35.

The report listed top oil exporters to be mostly affected to include Nigeria, whose share of total oil exports on the continent is 91.7 per cent. Others are Algeria (95.7%), Angola (97.4%), and Libya (88.4%). It identified others also to be affected as South Africa, Egypt, Equatorial Guinea, Congo, Gabon, and Ghana.