Coronavirus deals severe blow to services sectors

14 April 2020

Personal services sectors such as tourism, hospitality and retail at a standstill due to drastic measures taken in the fight against COVID-19.

The COVID-19 pandemic has dealt a heavier blow to personal services sectors compared with other recent economic crises, an UNCTAD analysis shows.

The pandemic has massively disrupted key services sectors, especially tourism, hospitality and retail. This contrasts with the resilience witnessed during the 2008 great recession and the 2011-2013 eurozone sovereign debt crisis, particularly in comparison to trade in goods.

An UNCTAD survey found that in the eurozone, the purchasing managers index (PMI) indicator, a measure of prevailing economic trends, in services and the composite PMI both contracted from above 50 points in January to minus 28.4 and minus 31.4 respectively by mid-March.

“The situation is expected to worsen due to the drastic but necessary social distancing and lockdown measures adopted in the eurozone in the last month,” said Pamela Coke-Hamilton, director of UNCTAD’s international trade division.


PMI Fig 1

(UNCTAD calculation)

Personal services sector nearly destroyed

The strict measures deployed to combat the pandemic have nearly destroyed personal service sectors such as tourism, hospitality and transport.

Millions of economically vulnerable people in developing countries are reeling under the crushing weight of the measures, as these sectors absorb a large share of low-wage, low-skilled and part-time workers, many of whom are women.

“If the crisis persists, the whole tourism industry as we know it in developing countries may collapse,” Ms. Coke-Hamilton warned. Women represent more than half of the workers (54% in 2019) in the industry worldwide.

Restrictions on flights and on ships entering ports, have also affected remittances, a lifeline for millions in developing countries.

According to the World Bank, remittances were set to surpass foreign direct investment in 2019 to reach $550 billion, but both are likely to drop significantly in 2020 due to the pandemic.

Countries such as the Philippines, which relies heavily on remittances from its diaspora working in the personal services sector, along with 7 million tourists annually, may be particularly hard hit.

Other countries where remittances represent a high share of GDP, such as Kyrgyzstan (35%), Tonga (33%) and Tajikistan (31%), will also be severely affected.

Windfall for ICT services

In contrast to COVID-19’s debilitating impact on personal services, the pandemic has handed a windfall opportunity to services powered by information and communication technology (ICT).

They include services enabling teleworking, video streaming, gaming and e-commerce platforms.

The rapid growth of these “impersonal” services is being mostly felt in developed countries, as they boast widespread and higher quality ICT services.

“Nevertheless, this boom will not compensate for the loss of income from personal services sectors, especially in developing countries,” Ms. Coke-Hamilton said.

Policy coordination needed at all levels

To address the economic fallout from COVID-19, thematic policy coordination is needed nationally and globally, Ms. Coke-Hamilton underscored.

She said health policies should be devised and applied in tandem with macroeconomic, trade and finance policies in a holistic approach.

This is critical in the services sector, which relies on a coherent mix of policies and regulations between the sector and those in trade, investment, competition, industrial, social and other areas.

“Given that strict mitigation measures remain in place as countries battle the pandemic, government programmes to support furloughed or unemployed people through direct payments can help protect vulnerable workers from services sectors,” Ms. Coke-Hamilton said.

Governments should cast their nets wider to support the 164 million migrant workers worldwide, many of whom are women, working in personal services sectors, she added.

Such support may include providing them with secure access to financial services for sending remittances or giving them short-term loans.

Looking ahead, as developing countries continue to nurture exports of personal services as an important source of income, they need to fast-track and upgrade skills in knowledge-intensive ones such as those powered by ICT.

“This will create jobs that are not just formal, qualified and high-quality, but also resilient,” Ms. Coke-Hamilton concluded.