Digitization to push global services trade to US$8 trillion by 2025
As the pandemic accelerates the adoption of digital and remote operations, cross-border trade of professional services is expected to propel overall services trade to US$8 trillion by 2025, according to a recent report from Western Union Business Solutions and Oxford Economics.
Services are an often overlooked portion of trade in comparison to goods. Commonly traded services include B2B services (consulting, legal, engineering), IT services, financial services, transport, and tourism and travel.
The importance of services in international trade has grown significantly in the past thirty years, driven by advances in communications technology. The share of services in total trade has risen from 19% in 1995 to 24% in 2019, while the value of global trade in services increased by 50% between 2010 and 2019 – or roughly double the pace of growth in traded goods.
Technology has allowed companies to more easily outsource business processes such as accounting, legal, and IT – and trade in knowledge-based, digitally delivered services is expected to accelerate in the next five years.
Overall, the Western Union report projects that international trade in services will grow by 31% from US$6.1 trillion in 2019 to US$8 trillion in 2025 – and that includes travel and transport, which will see long term negative impacts from the pandemic.
The report expects outsized growth (62% of the US$1.9 trillion) from knowledge services (B2B, ICT, financial) as companies turn to digitized working practices. 2020 will drive a downturn in all trade, however, with knowledge services trade dropping by 6%, the total services trade dropping 18%, and goods trade dropping by 13%.
B2B services trade is expected to grow by 37% between 2019 and 2025, financial services by 32%, and ICT services by 35%. Travel and transport will grow by a smaller 28% and 23%, respectively.
In Canada, services account for 20% of the country’s trade, below the global average of 24%. Canada’s export economy skews heavily to commodities, in contrast to resource-poor UK, a preeminent financial services hub that tops the globe at 40% services trade share.
Canada will see the smallest increase in services exports to 2025, compared to Hong Kong, Australia, Germany, Singapore, the UK, France, and the US. The US will see the largest increase, at $210 billion, due to its leadership in many categories of professional services and its strong digital infrastructure.
In Canada, as in most other countries, B2B services will be the main driver of services export growth.
The report notes, however, that Canada could increase its total services exports by $13 billion by 2025 via the liberalization of trade deals. In contrast to current trends of protectionism, liberalized trade policies would boost global services trade by an additional 11% or US$890 billion by 2025.
