Global payments company Western Union has launched a new report, “The Global Services Trade Revolutions: Fuelling post-pandemic economic recovery and growth,” in partnership with Oxford Economics – a leader in global forecasting and quantitative analysis.
The report projects the value of international trade in services rising from $6.1 trillion in 2019 to $8.0 trillion by 2025, equating to an increase of almost a third in the value of global flows over this period.
It is predicted this growth will be accelerated by the adoption of new technology and digitization 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, characterized by a steeper near-term contraction and a more prolonged and incomplete recovery (see Comparison of global services export forecasts graph).
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. 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 recognize and appreciate the value of global services will be in a better position to drive future success and ultimately, recovery,” said Andrew Summerill, President, Payments at Western Union.
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 percent.
Meanwhile, hard-hit traditional services categories such as tourism will decline by around 40 percent 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 percent by 2025 – down from 41 percent in 2019.
The report also analyzed 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 USA, 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 USA 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 (see 2019-2025 Predicted growth in services exports by country).
Furthermore, it is estimated a broad, multilateral liberalization of trade policies on services could provide an additional 11% boost to the value of global services trade by 2025, which would equal an $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. 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,” added Summerill.
The report, which aims to shine a light on the valuable 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 of all global trade flows, equating to $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 percent in 1995.1
“Our aim is to champion the industries fuelling economic growth and recovery and to provide support to boost the growth of the digital services sector,” concluded Summerill.
The full report can be accessed here