World Trade: the Most Exposed Industries to Covid-19 Negative Effects

The April 2020 world trade figures gives a detailed map of the exposure of manufacturing industries to the recessionary effects caused by Covid-19 epidemic. In order to examine which industries have been most exposed to the negative effects of the crisis, it is possible to explore the recent dynamics of international trade flows, classified in 20 industries on the basis of the ExportPlanning classification.

The graph below compares the different industries in relation to the rate of change recorded in the Q1-2020 compared to the same period last year (x-axis) , and the y-o-y rate of chage signed in April 2020 (y-axis). The graphical representation proposed gives an immediate reading of the industries that have reported the most intense difficulties during the phase of maximum health emergency. The yellow line represents the bisector of the graph, which distinguishes the industries the industries whose decrease was in line with that reported during the first quarter (along the bisector) from those that experienced a more significant decline (under the bisector). The dispersion of world trade industries allows to highlight the industries most exposed to the effects of the crisis caused by the spread of the epidemic.

Source: ExportPlanning

First, it is clear that the contraction has affected almost all macro-sectors, but with varying intensity. At the top right is possible to identify the first set of products more "resilient" to the contraction, which, after a positive change recorded in the first quarter, showed a less intense reduction in April.
These are typically essential goods such as Food products (E0 and B5), Health and Medical Products, including chemicals used in the pharmaceutical industry (E4, B5) and Consumer Goods (E1) like hygiene and cleaning goods.

The second set of goods is located at the bottom left of the graph; it represents macro-sectors that have experienced a further intensification of a negative cycle already highlighted in the first quarter. In particular, it is possible to analyze in detail the dynamics of the following clusters of industries.

Investment and Intermediate goods

In the case of Capital goods, with the exception of ICT Tools and Equipment (F1), there was a contraction of about 20%, compared with an already negative cycle recorded in the first quarter. The worsening of the negative trend is mainly due to a further rise in uncertainty on a global scale, in a pre-pandemic context that was already weak for the sector, due to the US-China trade war.
The international flows of Intermediate goods were also largely negative, as they were strongly affected by the blockage of the production in place in the different geographical areas, with the consequent interruption of global value chains. The contraction reflects, moreover, the strong downturns marked by the respective "downstream" industries integrated along the supply chain; this is the case of the reduction pointed out by Components for means of transport.

Raw materials

With regard to Raw Materials (A1 and A2), the strong contraction in economic and industrial activity has led to a significant reduction in prices, particularly marked for oil. The result reflects both price and demand contraction.

Fashion

With a y-o-y variation close to -39%, the Fashion System (E4) and the relative Textile and Leather supply chain (B2) are among the industries that showed the greatest economic decreases. The policies to contain the epidemic were implemented in one of the most delicate periods for the sector, causing several delays in the delivery of spring collections. On the demand side, at the same time, there was a strong delay in purchasing goods not strictly necessary.

Automotive

The Automotive industry (F3) shows the worst performance in terms of international trade. In April it reported a reduction close to -58%. The result appears particularly negative because of a pre-existing weakness, linked to the transformation in regulatory and consumer preferences. The supply-side shocks resulting from the production freeze have been associated with sharp drop in demand, due to the postponement of consumers'purchasing decisions for durable goods in a phase of such deep uncertainty.

Conclusions

An analysis of the global trade situation by industry allows to identify the macro-sectors most exposed to the current recessionary phase of international trade. The Automotive industry and the Fashion System sector, and the related supply chains, seem to be the industries most affected. The two industries are characterised by a strong integration of the supply chains and have suffered particularly from production stoppages in the various countries and forced closures of stores caused by national lockdowns. The result indirectly indicates a change in consumption behaviour. In the phase of most emergency and growing uncertainty, the purchasing behaviour was mainly directed towards food products and healthcare equipment, to the detriment of voluptuous and durable goods. Moreover, the negative effect on incomes caused by the economic crisis could be linked to the factors mentioned above, with a consequent reduction in the purchasing power of potential consumers, which could lengthen the time of recovery.