Despite steady growth over the last decade, the future prospects for global services trade are likely to be dampened by the COVID-19 pandemic, its likely impact on the global travel and transport service export sectors, and the ongoing slowdown in global goods trade, according to PwC’s latest Global Economy Watch.
Service exports account for around 23% of global exports and, while they remain largely exempt from the tariffs inflicted by escalating trade wars, the growth rate of service exports is highly correlated with growth in merchandise exports, highlighting the direct link between trading goods across borders and demand for global transport services.
Looking further ahead into the medium to long-term, the prospects for global services trade are more positive due to continued technological developments, improved access to high-speed internet and real income growth in emerging markets.
Barret Kupelian, senior economist at PwC, commented: “In the short-term, we expect a slowdown in the largest services exports sector, travel, due to COVID-19. China is the world’s largest source of international tourists. In 2018, Chinese tourists made 150 million outbound trips and accounted for around one fifth of global tourism spending. Depending on how long travel restrictions continue and how wide the spread of the virus is, there could be significant consequences for the international travel and tourism sector.
“In the medium to long term, however, the outlook for services exports is more positive. In our last World in 2050 report, we projected continued growth in real income levels across both the G7 and E7, which will generate demand for more services.
“Continued technological breakthroughs, coupled with the spread of faster and cheaper internet connections, mean that newer, more specialized services will continue to be developed, and that it will be easier to trade these across borders. On the regulatory front, there are also some tentative steps being made by the World Trade Organization to set rules for the digital economy, e-commerce and data flows, which could provide an additional impetus to services trade if successfully concluded.”
The effects of the shift in global economic power from the West to the East that first started with the manufactured goods sector is now shifting into the services sector. The G7’s share has steadily fallen from 45% in 2005 to 38% in 2018. Meanwhile, the E7’s share has risen from 9% to 12%. The E7 countries are China, India, Indonesia, Brazil, Russia, Turkey, and Mexico.
However, the US continues to be the top global exporter of services with a massive 14% share of the global market. The UK, Germany and France follow with shares of 5-6%. China is now the world’s 5th largest services exporter, overtaking the Netherlands, Spain and Italy. China’s exports of services have grown by an average rate of 8% per annum since 2010 in real US$. Meanwhile, India has overtaken Japan and bagged the 8th spot in the global rankings of service exporters in 2018, up from 14th in 2005.
Globally the fastest growing sector since 2005 has been telecommunications, computer and information services, driven predominantly by the emerging markets. Its share of global service exports has grown from 7% to 10% in the last 15 years and, with global internet users expected to grow from 60% of the world’s population today to around 90% by 2030, growth looks set to continue.