Two-speed recovery in services trade expected: HSBC

THE Covid-19 pandemic will lead to a two-speed recovery in services trade, whereby international travel is likely to remain largely suppressed due to travel restrictions, while digital services may recover more quickly, said HSBC trade economist Shanella Rajanayagam in a report.

However, growth in digital services is unlikely to fully offset the collapse in travel in the near term. This suggests that services trade is likely to remain well down on pre-pandemic levels for some time to come, for most economies. On the other hand, digitally-enabled and R&D services could see a post-COVID boost, as businesses look to build resilience into supply chains and reshore some production from overseas.

Tackling barriers to digital trade and improving digital infrastructure will help support greater digital flows across borders, and could help speed up the recovery in global services trade, she said.

Services exports from advanced economies contracted by 28 per cent year-on-year in Q2 2020, steeper than the 25 per cent decline in goods exports from these markets. Emerging markets have also experienced steep contractions in their services exports with few signs of revival amid ongoing travel restrictions.

Thailand's services exports for instance tumbled by over 70 per cent and Malaysian services exports were down 55 per cent year-on-year in the second quarter.

Unlike during the Global Financial Crisis when services trade demonstrated remarkable resilience compared to goods trade, services flows are bearing the brunt of the trade shock this time around. Tourism and business travel, which together comprise nearly one-quarter of global services trade, have largely ground to a halt thanks to global travel restrictions, noted Ms Rajanayagam.

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"And with the number of COVID-19 infections once again gathering pace, particularly in the northern hemisphere which will soon be heading into winter, it is unlikely that international travel will rebound anytime soon," she said.

On the other hand, the current situation has increased the relative importance of other types of services such as telecoms, computer, financial and entertainment services, which tend to be delivered electronically and are more amenable to digitisation.

In fact, over 60 per cent of global services exports are traded digitally. Prolonged lockdown and travel restrictions are likely to accelerate digitisation trends, providing opportunities for economies to further boost digital services trade, she noted.