Globalisation – where the world has become increasingly interconnected – all but collapsed 2020 as COVID hit, with broken supply chains and lots of talk of the need for greater national self-sufficiency. Given that backdrop, the story for 2021 has been one of a remarkable rebound.
Global logistics leader DHL has released its annual Global Connectedness Index – examining more than three million data points involving trade, cross-border flows of capital, data transmission, and the movement of people – and concluded that, while globalisation has changed, it remains strong.
Specifically, global trade is now greater than the pre-pandemic level. Global flows of capital are robust, with especially strong growth of cross-border foreign direct investment (FDI), and the flow of goods and capital continues to be mostly global. That is, there has not been a noticeable shift toward regionalisation of global supply chains. However, emerging nations that suffered the most have not fully recovered, with their trade and capital flows remaining below pre-pandemic levels.
The surge in international trade since mid-2020 is particularly noteworthy. The global volume of trade in goods has risen approximately 5% above pre-COVID levels. This has been largely led by increases in economic stimulus across the globe in conjunction with shifts in spending patterns, from in-person services to heavily traded goods.
But there is also plenty of room for improvement on other measures of global connectedness. After spiking early in the pandemic, global flows of information have decelerated and only grown slowly in the past year. The flow of people also remains far below the pre-pandemic levels, largely due, not surprisingly, to travel restrictions. This has limited the ability to conduct global business and also contributed to labour shortages in many countries.
Chart: Four pillars of global connectedness: trade, capital, information, people
Indeed the flow of people has been the hardest hit component of globalisation. International travel fell 73% in 2020, and was down more than 80% over the first six months of 2021. This brought severe economic pain to the tourism sector.
International migration throughout 2020 slowed but, surprisingly, didn’t reverse. Although, the same can’t be said for international education, which has also been greatly impacted by movement restrictions.
Looking closer to home, Australia has experienced similar patterns to that of the global economy. Trade throughout 2019-20 wasn’t greatly affected by the effects of the pandemic, with exports of goods outweighing a reduction in services trade. However, the combination of ongoing people movement restrictions, trade restrictions from China and COVID-related production closures across Asia meant that, at times, Australia’s overall trade was impacted, falling by 5.1% in 2020-21.
The level of foreign investment into Australia in 2020 reached $3,991 billion, up 2.5% from 2019, with capital flows both into and out of the country sustaining high levels.
And while things have been solid for Australia in its trade and movement of capital, the decision to close international borders in response to COVID has had detrimental impacts. Through the year to March 2021, net overseas migration fell by 95,300 people, the first annual decline since 1946.
So, as a whole, global connectedness has bounced back following the onset of the pandemic in early 2020. But this has not fully included the world’s poorer nations, with trade and capital flows still below pre-pandemic levels.
Australia also has a lot of work to do on this front – to bring back global services and people flows. Deloitte’s key thought leadership report for the year, Australia Remade - A country fit for the age of disruption, certainly highlights the importance of connectedness to Australia’s future economic prosperity – a challenge for policy makers business in 2022 and beyond.