Bittersweet Forecasts for Trade: Merchandise Trade Soars while Services Struggle to Keep Up

Trade in goods is recovering lost ground from the pandemic. New forecasts from the WTO in October 2021 highlight that merchandise trade is expected to grow at 10.8% in 2021, in comparison to the 8% original forecast in March 2021. This follows the trajectory marked in the last two quarters of 2020. Asia is at the centre of this trade recovery, given its strong export performance in 2021 led by the early success in containing the pandemic, especially in east-Asian states, thus recovering faster than the rest of the world. Exports from Asia are also expected to increase by over 18% by the final quarter of 2022, as against smaller expected increases of 8% in North America, 7.8% in Europe, 4.8% in South America, 2.9% in the Middle East and only 1.9% in Africa.[1]

Figure 1: World Merchandise Trade Volume, 2015 Q1 to 2022 Q4

However, the progress is not sufficient to say that trade is back to business as usual, as challenges impacting the world’s value chain remain. Supply-side constraints, such as the recent semiconductor scarcity, logistics challenges which have raised shipping costs, and port blockages caused by mobility restrictions on workers, are expected to continue impacting trade negatively.

Similarly, services trade has not yet managed to recover, weighed down, particularly, by the weak performance to travel and leisure. Specifically, services trade was down by more than 9% year-on-year (YoY) in the first quarter of 2021 due to the slow return of travel against the emergence of the second and third waves of the COVID-19 pandemic.

Note: Index, 2015=100; Source: WTO forecasts, October 2021

Travel and transport continue to be the most negatively impacted sectors. Loss in international travel receipts recorded a decline of over 60% YoY in Q1 of 2021. Transport saw the greatest decline in Northern America and Latin America and the Caribbean (LAC) falling, by 29% and 18% respectively.

Asia Pacific recorded recovery in transport services, given the hike in logistics costs, increasing by over 20% in international travel sales. Nevertheless, those sectors which can operate online and/or remotely, experienced better performance. For example, financial and other business services saw an increase of 6% in exports compared to the previous year. Whilst signs of positivity have started to emerge in the second quarter of 2021, these is still some distance to reach a full-scale recovery to pre-pandemic levels.

Figure 2: World commercial services trade by sector, 2008Q1-2021Q1, year on year percentage change

Whilst most regions experienced a fall in trade in services, the magnitude differs from region to region. Specifically, the highest impact was seen in LAC, where the fall was over 30% for service exports and 20% for service imports[2]. Europe, on the other hand, showed the smallest impact on trade in services, with a mere 4.5% decrease in exports and a 6.9% decrease in imports. The G20 group of economies is the only group showing positive growth in trade in services, with service exports and imports growing at around 4.5% and 4.0% YoY, respectively, in 2021 Q2. Such growth is mainly attributed to the increasing receipts arising from high shipping costs again in the second quarter of 2021 which continued to boost the revenue of transport services in G20 economies.[3]

Source: WTO based on UNCTAD estimates, October 2021

The experience of the United Kingdom is a clear example of how trade in goods increased while trade in services took a back seat. UK-EU trade relations shows how merchandise exports from the UK to the EU increased by 7% YoY, from £94 billion in the first half of 2020 to £101 billion in the first half of 2021, despite the ongoing difficulties faced by the border measures implemented post-Brexit[4]. On the other hand, export of services to the EU fell by 14%, from £19 billion in Q1 of 2020 to £16 billion in Q1 of 2021, dragged down by the fall in travel and transport services.

UK, trade in goods and services with the EU are expected to continue declining in the short-to-medium term. Based on International Economics Consulting Ltd’s (IEC) forecasts, between 2021 to 2025, UK merchandise exports to the EU will contract by 10%, moving from £138 billion to £120 billion, whilst UK merchandise imports from the EU will remain stable. In terms of services, between the same period, UK service exports to the EU will decrease by 3%, moving from £14.8 billion to £14.3 billion, whilst UK service imports from EU will decrease by 23%, moving from £13 billion to £10 billion. Financial services along with Britain’s exit from the EU can be the defining factor for this decline. UK imports of financial services from the EU declined by 35.2% between Q1 2019 and Q1 2021. Figures from the Office for National Statistics (ONS) in the UK suggest that there has been a shift of UK trade in financial services away from the EU towards other markets, such as Singapore and South Korea, since the end of the Brexit transition period.

Figure 3: UK Trade in Goods and Services with the EU, 2001-2025

Revival of trade to pre-pandemic levels is the key priority to narrow the gap in economic output. Earlier in September 2021, the International Chamber of Commerce (ICC) released its “Global Business priorities for the WTO”, which outlines a set of recommendations for the WTO and its Member States.[5] For services trade, the ICC rightly suggests the WTO put market access back on the agenda by updating the General Agreement on Trade in Services, particularly in the area of digital trade.

Note: Confidence level of 75%; Forecasts start from 2022 for merchandise exports; Forecasts start at Q2 of 2021 for Service exports.
Source: IEC forecasts; ITC; UNSD, ONS

To this, we would add that building on the momentum created on the Joint Statement Initiative on e-commerce, the WTO should aim to reach an agreement and conclude the e-commerce negotiations in time for the upcoming WTO Ministerial, which will take place in early December 2021 in Geneva, Switzerland.

There exists a potential for trade reform, particularly for growing economies. Rapid digitalisation, which was further fuelled by the pandemic, kept large portions of economies running through the creation of digital trade in services and e-commerce. This has the potential to create an accessible and interoperable global digital ecosystem that will be crucial to ensure the development of a strong recovery and future economic resilience.[6]

At IEC, we have a team of experienced international trade experts, devoted in finding solutions in the area of trade negotiations, regional digital connectivity, e-payments, distributive ledger technology for sustainable financing, digital trade and e-commerce and trade policy/trade negotiation support, with a wide range of partners, such as the UK’s FCDO, DIT, the European Commission, Asian Development Bank, WEF, UN agencies, the World Bank,  and G7 and G20 Governments. IEC has a partnership with Microsoft which has led to the publishing of several analytical tools for the public. Do not hesitate to reach out if you are looking to explore possible collaboration opportunities.

Paul Baker is the founder and CEO of IEC. He is a consultant for various governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s TradeTech Working Group on AI, IOT, Blockchain and Digital Identities for trade, and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Committee on Trade.


[1] WTO (2021). Global trade rebound beats expectations but marked by regional divergences. PRESS/889 PRESS RELEASE. 4 October 2021. Available at:

[2] UNCATD (2021). International Trade in Services Q1 2021, UNCTAD-WTO-ITC Quarterly Data Set on International Trade in Services. UNCTAD/GDS/DSI/MISC/2021/6. 23 July 2021. Available at:

[3] OECD (2021). International trade statistics: trends in second quarter 2021. 24 August 2021. Available at:

[4] See IEC dashboards at

[5] ICC (2021). Global Business Priorities for the WTO. September 2021. Available at:

[6] Brende, B. & J. Vinals, (2021). We must reform trade to build a sustainable, inclusive global recovery. World Economic Forum, 4 October. Available at:


Related News

Promoting Sustainable Development through Digital Trade a...


UK-Mauritius April 2024 Trade Updates


Rules of Origin in EU-Africa Trade


IEC Quarterly Newsletter - March 2024

IEC Quarterly

Mauritius’ Financial Crimes Commission Act 2023

IEC in the News

Mauritius and the AfCFTA Part 4: The Appeals Process in D...

IEC in the News