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Global Coronavirus turbulence: opportunities for Pakistan exports sector

The Coronavirus pandemic (COVID-19) has become one of the major turbulences to the global economy and financial markets and the supply chains.

The costs of these unprecedented developments for countries are huge, including the direct disruption to global supply chains, weaker demand for imported goods and services, and the wider regional deterioration in international businesses.

Coronavirus-opportunities-Pakistan-exports-sector
Figure: Pakistan should continue with its policies to boost total exports. 

Risk aversion got bigger in financial markets, with the USA 10-year interest rate falling to a record low and equity prices declining sharply, commodity prices have dropped, and business and consumer confidence have curved down immensely.

Major institutions and banks have cut their forecasts for the world economy and uncertainties of the virus impact on the global economy have stunned industries worldwide.

The source of the Coronavirus, Hubei province had a GDP of more than $500 billion. Bloomberg’s recent report showed that Hubei contributed 39.4% of the total phosphorus mining in China, 11.9% of apparel produced in China, 11.6% of fertilizer, 8.9% of automobiles and 4.9% of cement between January and October 2019.

global-coronavirus-GDP-impact

While the World Economic Forum’s prediction, China’s growth in the 1st quarter of 2020 is expected to slow down to 4.5%.

“From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of disruption to economies from containment measures,” Ben May, Head of Global Macro Research at Oxford Economics, said in a recent report.

The government of China locked down cities, controlled movements of millions and suspended business/manufacturing operations — moves that will slow down the world’s second-largest economy and drag down the global economy along the way.

The global textile and apparel industry has witnessed its standstill from manufacturing to consumers. Major retailers and brands are stopping current and future orders.

For instance, China exported more than $35 billion worth of clothing apparel and made-up textile products to the USA alone. By all accounts, this figure is likely to drastically not only in the US but also in the hard-hit EU and around the globe.

Trading partners likely to report the largest impact from a 2% reduction in Chinese exports of intermediate inputs are the EU (estimated at $16 billion), US ($5.8 billion), Japan ($5.2 billion) and South Korea ($3.8 billion).

Opportunities for others

This global economic pause due to Coronavirus has given other smaller economies a chance to step up. For example, Pakistan with a complete textile and apparel supply chain existing in the country can profit from the slowdown in trade flow between China and the USA and the EU in textile products as it can capture some of the fashion market shares.

From 2013 and 2018, around US$1.1 billion was added to the exports of articles of apparel and clothing to the EU. Furthermore, exports of made-up textile articles improved to $650 million between 2013 and 2018 due to the GSP Plus preferences.

Pakistan Bureau of Statistics data shows, exports boomed 13.82% year-on-year in February 2020. Amidst a global slowdown in trade, exports from Pakistan have gained by 3.65% in the current FY. And the country’s exports to the EU increased from US$6.3 billion in 2013 to US$8 billion in 2018.

This shows that the unilateral trade incentives provided by the European Union to Pakistan in the form of GSP Plus status did help boost export sales to the region and limit what otherwise could have been a complete decay of the export sector between 2013 and 2018.

The trade linkages established between Pakistani exporters and their clients can help increase exports and tap newer markets as supply chains are threatened due to the spread of the coronavirus.

Pakistan should continue with its policies to boost total exports. Although the growth in global trade is likely to slow down this year, Pakistan must contemplate in developing its export sector to take advantage of opportunities as a result of challenges reported by the large manufacturing powerhouses.

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