9.7 percent in 2009 in an unprecedented synchronized way. A rebound is projected for 2010. The slowdown is relatively uniform across all regions suggesting that the drop in demand is the primary cause. While the global downturn started in developed economies, developing countries were also being affected. The Latin America region is projected to post the severest decline in trade in 2009, while the rebound will be driven by East and South Asia. These projections are in line with a review of the impact of historical global downturns on trade flows by Freund (2009) indicating that the elasticity of global trade volumes to real world GDP has increased gradually from around 2 in the 1960s to above 3 nowadays. This is a result of the increased vertical specialization that characterizes trade and the large proportion of trade occurring within global value chains. According to Yi (2009), the consequence of the global integration is that each $1 of exports contains more imports than previously, so that a decline in GDP has a magnified effect on world trade. The positive side is that trade tends to rebound very rapidly when the outlook brightens.

Trade in services is proving to be more resilient. Monthly U.S. trade in goods declined by 33 percent in value terms between July 2008 and February 2009; trade in services declined by only 10 percent during the same period. This trend is also observed for other developed countries and developing countries. The resilience of services trade is mostly a reflection of relatively robust demand for business-related professional services (e.g., insurance, telecommunications) and technical services (e.g., legal and IT outsourcing). The value of trade in services such as transportation of goods and people and tourism has fallen in line with the merchandise average, but business process outsourcing is still registering positive growth rates (albeit much lower than pre-crisis). It also reflects the fact that the demand for services is less cyclical than demand for goods and not subjected to the decline in inventory supplies. Services trade has also been less dependent on trade finance than trade in goods.

# _A._ **_Drop in merchandise exports preceded decline of imports_**

Among the surveyed countries, the World Bank estimates that the Philippines, Ukraine and Turkey would be the most affected, while low-income countries in Africa, mostly commodity exporters, would be more resilient and post positive export growth in 2009 (Figure 1). Monthly data available up to March 2009 for nine out of the 14 surveyed countries confirm that trade plunged starting in the last quarter of 2008 and continued to decrease in the first months of 2009 (Figure 2). Interestingly, the drop in trade in most of these countries has been driven by a sharp decline in exports as demand from developed countries dried up abruptly in the last quarter of 2008. Also, in commodity exporter countries, exports and imports tend to be less synchronized as imports traditionally include consumer and intermediate goods and inputs for the domestic economy, and for which the local demand has not been affected in the early phase of the financial crisis. However, exports have been affected by the recession in developed countries. As a result, exports dropped by 10 percent on average across these nine countries, while imports increased by 7 percent on average, during the last quarter of 2008. As a result, some countries have reported an alarming squeeze in their current account and foreign exchange reserves that was constraining their trade finance capacity.

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