LDCs terms of trade during crisis and recovery

“Exporting more for less.”  That is the situation the world’s least developed countries (LDCs) are in following the global financial crisis of 2008.  The crisis affected trade throughout the world, but hit the least developed countries especially hard, ITC’s latest Trade Map Fact Sheet has found. Click here to download LDCs Terms of Trade during Crisis and Recovery. 

Recovery is slow, and in 2009 only four LDCs showed improvement in their terms of trade.  At the same time, 22 showed deteriorating terms of trade, with the remainder showing mixed results. 

Although trade continues to rebound, throughout 2009 non-oil exports from the LDCs to major partners declined by more than 8.8% in value.  At the same time, volumes exported grew by nearly 6%, which implies that unit prices of LDC exports dropped significantly.  

Countries’ overall trade performance is crucial to understanding the full impact of the crisis.  Terms of trade are key to that analysis.  They are essentially a measure of the changing price levels of a country’s exports and imports over time.  A positive evolution in terms of trade indicates that a country’s exports are increasing in price faster than imports.  Conversely, declining terms of trade indicate that import prices are rising more quickly.    

ITC Trade Map Factsheet #3 looks into LDCs’ export recovery in terms of value and volume following the crisis.  It also examines the LDCs’ overall performance between 2006 and 2009, and related considerations of vulnerability due to import and export composition. 

ITC found that the global financial crisis took a considerable toll on LDCs’ terms of trade and their recovery appears to be sluggish.  

While export levels may rebound to their 2008 levels in the next couple of years, as predicted by the WTO, the value of that will be limited if those export earnings only buy a smaller quantity of imports. 

Both 2008 and 2009 were volatile years for LDCs’ trade patterns, with rapid upswings, downswings and a still-ongoing recovery that has yet to reach earlier levels.  In value terms, recovery is clearly happening. But faster growth in volumes of exports throughout 2009 was coupled with an overall trend of deteriorating terms of trade for many LDCs.  These challenges highlight the continuing difficulties LDCs face.