Trade in commercial services in the Asia-Pacific region is recovering, but the recovery remains both partial and fragile. Services exports from the region remain about 20 per cent below pre-pandemic levels. ESCAP estimates that global export and import values have increased by just 2.7 per cent and 1.2 per cent, respectively, in 2021, while in the Asia-Pacific region these figures were 9.6 per cent and 0.9 per cent, respectively. This stronger export growth will boost the region’s prominence in global services exports from 23.8 per cent in 2020 to 25.4 per cent in 2021, while its import share will decline slightly from 30.2 per cent to 30.1 per cent.
Nevertheless, owing to COVID-19 sub-variant outbreaks during the second half of 2021, the current trade recovery may lose its momentum.
Unlike merchandise trade, global and regional trade in services remain well below pre- pandemic levels: Global services trade in 2021 is estimated to be 18.0 per cent (US$ 180 billion), lower than before the pandemic (2019), while the region has seen a 19.6 per cent (US$55 billion) loss.
Fig.: Global and Asia-Pacific region’s commercial services trade performance, 2018-2021
Source: ESCAP, Trade in commercial services outlook in Asia and the Pacific 2021/2022 , p. 3.
Travel services still depressed; merchandise trade and digitalization have supported demand for other service sectors
Sector-wise, travel services have been hit the hardest, while merchandise-related services, ICT and financial services tended to perform positively.
Indeed, despite recovering from its lowest point in 2020 (Q2), global travel trade was 60 per cent down during the first quarter of 2021 compared with 2019. In Asia and the Pacific, travel services exports and imports declined by 63.8 per cent and 59.5 per cent, respectively, during the same period. This decline has hit some countries particularly hard: Azerbaijan, Fiji, Indonesia, Lao People’s Democratic Republic, Malaysia, Philippines, Sri Lanka and Thailand lost more than 90 per cent of their travel exports year-on-year.
In contrast, transport and other business services have followed the recovery in global and regional goods trade, experiencing sustained growth after the initial slump in Q2 2020. However, significant increases in oil prices combined with inflated containership rates have contributed to higher logistics costs and limited the growth of these sectors during the second half of the year. Information and communication technologies (ICT) and financial services have enjoyed positive trade performance globally and regionally, accelerated by the pandemic-induced digitalization boost.
Looking forward: cautious optimism with the recovery of travel services lagging
Going into 2022, services trade is expected to continue recovering slowly though non-uniformly across sectors.
On the one hand, current estimates indicate that international tourist arrivals in Asia and the Pacific will recover to pre-pandemic levels in 2023 at the earliest. Indeed, despite some countries’ efforts to reopen ahead of the holiday season, uneven vaccine roll-outs, vaccines discrimination, pandemic-induced changes in consumer demand and origin countries’ strict COVID-19 policies all cast some doubt on the short-term recovery of the sector. Moreover, owing to persistent travel restrictions in the region, particularly in China (the largest importer of travel services in the world), the region’s recovery is expected to lag behind that of the rest of the world.
On the other hand, in tandem with merchandise trade, transport and other goods-related services are expected to experience moderate growth in 2022. While sustained demand for goods and heightened e-commerce activity are expected to keep fuelling demand for these services, recurrent outbreaks of COVID-19 and the resolution of supply-chain disruptions will determine the overall performance of these sectors in 2022.
Finally, as the shifts towards remote work and increased digitalization are expected to linger, ICT, insurance, pensions and financial services will continue to expand into 2022.
The acceleration of digitalization will be the pandemic’s most enduring legacy
As discussed in the recent Trade in Commercial Services Outlook in Asia and the Pacific 2021/2022, the acceleration of digitalization is expected to be one of the most enduring legacies of the pandemic.
Some COVID-19-induced digitalization changes include the development of fully contactless experiences in tourism, the digitalization of maritime ports, the faster implementation of paperless trade, and the surge in the use of digital modes of payment. The explosion in e-commerce sales, which in Asia and the Pacific are expected to double by 2025, will also continue supporting complementary services like transport and logistics.
Ultimately, as the digitalization of the global economy intensifies, it will continue to redefine the nature of the services trade in the medium to longer-term. The increasing tradability of services will be a positive force for services trade growth post-COVID-19, not only through enhancing the way services are traded, but also through the creation of new service domains.
For more details on trends related to trade in services in Asia and the Pacific, please refer to the Asia-Pacific Trade and Investment Trends Report 2021/22.