On 12 April 2016, the International Monetary Fund (IMF) released its updated World Economic Outlook stating that future economic prospects are now so poor that an immediate, proactive response is called for. There is a need for a more potent policy mix to turn the tide based on well-known elements: fiscal and monetary policies, as well as structural measures. IMF suggests joint action by nations across the world. Growth-friendly revenue generation and spending should be the central focus of fiscal supportive initiatives.
To what extent the downward adjustment in emerging economies relates to the United States (US) central banks’ initial rise in interest rates (Dec 2015) is difficult to assess. The US slow-down on quantitative easing had a big negative effect on capital flows into investments in emerging economies.
According to BIMCO analysis, as we scout the globe for growth stories, the emerging markets and developing economies stand out in spite of the headwind in 2015. Expected growth is 4.1% in 2016 and 4.7% in 2017.
IMF now estimate global GDP will grow at 3.2% in 2016, increasing to 3.5% in 2017. This is down 0.2 percentage points for both advanced and developing economies.
BIMCO Outlook
As the oil price now seems to have bottomed out, the world now has to prepare for a different future. A future where oil price volatility may not be a one-sided slide as it has been since mid-2014 until January/February 2016. WTI and Brent currently quote USD 40-45 per barrel, up from USD 30 per barrel.
This means that bunker prices will start to go up too. From 2014 to 2015, average bunker prices dropped by 50%. The prudent owner with a long cargo book and significant future contract of affreightment commitments may choose to manage risks by hedging the expected bunker consumption at the current fuel price level. If he has not done so already.
‘Brexit’ represents a good deal of uncertainty, where no one benefits. Much needed policy actions are being put on hold due to this, in order for central banks and governments to save “ammunition” to fight even bigger troubles a few months down the road. If the UK exits the EU following its referendum in June 2016 – and that coincides with a steeper slowdown in China and more severe economic chaos in Brazil – institutions may blame themselves if they run out of “ammunition” in the middle of the battle. The fact is, the global economy needs action to be taken now. Lack of action now, may simply contribute to more or bigger troubles later.
Many of the commodity exporting countries still face hardship going forward, as the dwindling oil and gas prices and lower prices for other key commodities has resulted in financial distress for public finances. This hits hard, when your economy is overly reliant on the revenue made from commodity exports, as it is the case in Russia, Nigeria and Saudi Arabia. This not only leads to less exports from these countries but also lower growth and thereby fewer imports, all of it impacting world growth and shipping negatively.
Read full analysis on macroeconomics at BIMCO’s website
Source: BIMCO
