Global trade is set to withstand significant headwinds in 2025

Doha, Qatar: International trade has displayed extraordinary volatility in recent years. After the sharp collapse in trade volumes in 2020 resulting f...

Doha, Qatar: International trade has displayed extraordinary volatility in recent years. After the sharp collapse in trade volumes in 2020 resulting from the Covid-pandemic, a strong rebound took place in 2021 as the pandemic gradually receded and the global economy began to progressively reopen. Afterwards, a challenging environment emerged amid rising interest rates, high inflation, and geopolitical instability. These negative conditions resulted in a sharp deceleration of trade activity in 2022, which was even more disappointing in 2023, displaying a highly unusual contraction.

During the last 40 years, a contraction in real trade volumes had only been recorded in 2009 as an aftermath of the Global Financial Crisis (GFC), and in 2020 with the dramatic disruptions caused by the Covid-pandemic, QNB said in its economic commentary.

While some of the headwinds remain relevant today, including a challenging geopolitical environment fraught with protectionism and logistical disruptions, a moderate recovery began to take place in 2024. In our view, although global trade growth will remain below the long-term pre-Covid pandemic average, the recovery is set to continue in 2025. In this article, we analyse three key elements that support our expectations of a sustained recovery.

First, key leading indicators point to an improvement in trade volumes. Investor expectations regarding future earnings of companies in the transportation sector are a revealing signal of prospects for global commerce. The Dow Jones Transportation Average is an equity index that is comprised of airlines, trucking, marine transportation, railroad and delivery companies, whose performance tends to lead the dynamics of global exports. After reaching a low in mid-2024 in year-over-year terms, the gauge has returned to the positive range that points to an expansion in trade.

It is also valuable to track the export performance of highly integrated Asian economies such as Japan, South Korea, Singapore, and Taiwan, which report trade statistics in a timely fashion. After displaying negative growth during most of last year, in line with the contraction in world trade, this measure began a rising trend that continues in the expansionary range. Overall, leading indicators suggest that trade is set to sustain its recovery.