Global Trade in Services to Increase by $2trn Over Next Five Years, According to New Report by Western Union and Oxford Economics
The Western Union Company (NYSE: WU), a leader in cross-border, cross-currency money movement and payments, today launches 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.
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Comparison of global services export forecasts (Graphic: Business Wire)
The report projects the value of international trade in services* rising from $6.1trn in 2019 to $8.0trn by 2025, equating to an increase of almost a third (31%) 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% (see 2019-2025 Predicted growth in international services trade graph).
Meanwhile, hard-hit traditional services categories such as tourism will decline by around 40% 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% by 2025 – down from 41% in 2019.
The report also analysed 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 (55%) of all global trade flows, equating to US$13.7trn 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% 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.
To access the report in full, please click here.
Note on research and methodology
The key framework in which Oxford Economics’ analysis is conducted is its own Global Econometric Model (GEM). The GEM replicates the world economy by interlinking 80 countries, 6 regional trading blocs and the Eurozone. These countries are interlinked through international trade in goods and services, competitiveness (measured by unit labour costs adjusted for the exchange rate), capital markets, interest rates and commodity prices. Historic data and forecasts are updated on a monthly basis by our country economists.
*Definitions of international trade in services used for this study:
- Business-to-business (B2B) services: Professional services (e.g. engineering, legal) and royalty & license fees (e.g. fees for the use of patented technology).
- Information and communications technology (ICT) services: Services related to computers (e.g. software development) and communication devices (e.g. telephone services).
- Financial services: Activities of the finance industry including banking, insurance and asset management.
- Transport & distribution: Services related to the international movement of goods (e.g. shipping, air cargo and cross-border road & rail transport) or transport of people (e.g. air passenger services).
- Tourism & travel: Spending by temporary visitors to another country for leisure, business or other purposes such as education or medical tourism (exports are defined as inbound tourism flows).
- Construction: Services relating to the construction/demolition of buildings and other structures, as well as installations and building repairs.
- Public services: Services commissioned by the public sector.
About Western Union
The Western Union Company (NYSE: WU) is a global leader in cross-border, cross-currency money movement and payments. Our omnichannel platform connects the digital and physical worlds and makes it possible for consumers and businesses to send and receive money and make payments with speed, ease, and reliability. As of June 30, 2020, our network included over 550,000 retail agent locations offering our branded services in more than 200 countries and territories, with the capability to send money to billions of accounts. Additionally, westernunion.com, our fastest growing channel in 2019, is available in over 75 countries, plus additional territories, to move money around the world. With our global reach, Western Union moves money for better, connecting family, friends, and businesses to enable financial inclusion and support economic growth. For more information, visit www.westernunion.com.
About Oxford Economics
Oxford Economics is a leader in global forecasting and quantitative analysis. Our worldwide client base comprises more than 1,500 international corporations, financial institutions, government organisations, and universities.
Headquartered in Oxford, with offices around the world, we employ 400 staff, including 250 economists and analysts. Our best-in-class global economic and industry models and analytical tools give us an unmatched ability to forecast external market trends and assess their economic, social and business impact.
1 Oxford Economics estimates based on the OECD Trade in Value-Added (TiVA) database, together with services activities within manufacturing firms as reported in Miroudot and Cadestin (2017), “Services in Global Value Chains: From Inputs to Value-Creating Activities,” OECD Trade Policy Papers No. 197
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