Western Union has launched a report, “The Global Services Trade Revolutions: Fuelling post-pandemic economic recovery and growth,” in partnership with Oxford Economics. The report projects the value of international trade in services rising from US$6.1 trillion in 2019 to US$8.0 trillion by 2025, equating to an increase of almost a third (31%) in the value of global flows over this period.
It is predicted this growth will be accelerated by the adoption of new technology and digitisation of working practices forced by the onset of the COVID-19 pandemic - which, combined with a shift in attitudes to online interactions, is likely to fuel economic recovery and growth of cross-border trade in services in the coming five years.
Western Union Business Solutions and Oxford Economics’ central forecast scenario envisages a relatively strong economic recovery, but it is also possible that a more pessimistic scenario will unfold, characterised by a steeper near-term contraction and a more prolonged and incomplete recovery. Still, this scenario would only magnify the relative outperformance of digitally-deliverable services.
“For far too long the global service industry has been undervalued and its importance underestimated," said Andrew Summerill, president, Payments at Western Union. "This report shows that this needs to change. The economic impact of COVID-19 will be felt for years to come, but we can clearly see that the regions and industries that recognise and appreciate the value of global services will be in a better position to drive future success and ultimately, recovery.”
The analysis suggests while the global economy is suffering in the short-term, trade in modern digital services will prove comparatively resilient through the current crisis. It estimates that the value of cross-border flows of B2B, ICT and financial services will decline by just 6% in 2020, compared to the value of goods trade, which will decline an estimated 13%.
Meanwhile, hard-hit traditional services categories such as tourism will decline by around 40% in 2020, while air passenger transport will decline by over 50%. As a share of total services trade, these categories are projected to slide to 39% by 2025 - down from 41% in 2019.
The report also analysed these trends across eight large developed economies, finding B2B services will be the main driver of export growth, with financial services also important for key hubs like the US, UK, Hong Kong and Singapore. Outside this sample, other predicted ‘hotspots’ for digital services export growth over the medium term include Korea and Japan, Australia and New Zealand, and Qatar and Saudi Arabia.
The US will post the largest overall increase in services exports during the forecast period, the result of its global leadership in many categories of professional services, as well as its investments in digital infrastructure and technological innovation.
Furthermore, it is estimated a broad, multilateral liberalisation of trade policies on services could provide an additional 11% boost to the value of global services trade by 2025, which would equal an US$890bn increase in the value of these cross-border transactions.
“The pandemic has already super-charged the growth in digital services and highlighted the potential for remote services to transcend global borders," added Summerill. "Over the next decade, we’re going to see swathes of new business models redefine the possibilities for cross-border transactions. And in the short-term, global trade in services will be a vital component of recovery, and it will be digitally focused industries that will be the driving force.”
The report, which aims to shine a light on the contribution that global digital services trade brings to the economy now and its potential for the future, uncovers that trade in services has typically been undervalued, when compared to trade in goods or manufacturing.
The report estimates that services currently account for more than half (55%) of all global trade flows, equating to US$13.7 trillion of cross-border transactions in 2019. Official statistics state that the share of services in total trade amounted to 24% in 2019, up from 19% in 1995.
Research and methodology
The key framework in which Oxford Economics’ analysis is conducted is its own Global Econometric Model (GEM). The GEM replicates the world economy by interlinking 80 countries, 6 regional trading blocs and the Eurozone. These countries are interlinked through international trade in goods and services, competitiveness (measured by unit labour costs adjusted for the exchange rate), capital markets, interest rates and commodity prices. Historic data and forecasts are updated on a monthly basis by its country economists.
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