Economic growth around the world is decreasing, and various governments, including Germany, China and South Korea, have announced stimulus packages to boost their economies. In fact, the International Monetary Fund (IMF) expects global GDP growth to slow from 3.6% in 2018 to 3.3% in 2019, before returning to 3.6% in 2020.
According to Peter Sand, Chief Shipping Analyst at BIMCO, slowing growth in advanced economies will harm global trade. Namely, as the IMF informed, growth in advanced economies is forecast to slow from 2.2% in 2018 to 1.8% in 2019 and 1.7% in 2020. Currently, advanced economies have the highest trade-to-GDP multiplier, and this softening will reduce global trade volumes quicker than the forecast 4.4% 2019 growth in advancing economies will generate them. The combined result is a reduction in trade growth.
[smlsubform prepend=”GET THE SAFETY4SEA IN YOUR INBOX!” showname=false emailtxt=”” emailholder=”Enter your email address” showsubmit=true submittxt=”Submit” jsthanks=false thankyou=”Thank you for subscribing to our mailing list”]
What is more, the Global Manufacturing PMI (Purchasing Managers’ Index), reported by IHS Markit, registered at 50.3 in April, the lowest level since June 2016. In addition, new export orders came in at 49.0, marking a contraction for the eighth month in a row. This contraction has slowed global trade down.
In Europe, manufacturing PMI in the euro area has been contracting since February. Specifically, it reached 47.9 in April, close to the 47.5 mark registered the previous month, which was a six-year low. The numbers vary greatly between the euro area countries, with Greece being at the top of the list at 56.6, and Germany at the bottom at 44.4. Germany is considered to be the export engine of Europe, so such a downturn is bad news, BIMCO adds.
In addition, the deadline for Brexit has been delayed to 31 October 2019, removing the immediate risk of Britain leaving the EU without a deal. However, it prolongs the period of uncertainty, with no guarantee that the situation will be addressed before the new deadline.
Regarding the US, the flash estimate for growth in the first quarter of 2019 came in quite high, at 3.2%. Last year, the overall US trade deficit reached a record high at USD 891.3bn, with the largest monthly trade deficit on record posted in December 2018.
One reason was that US buyers increased their imports in the last months of the year, to avoid the then-threatened tariff hike on some Chinese imports that came into effect on 1 January 2019
Mr. Sand explains.
After this, during the first two months of 2019, imports fell as inventories were full because of the frontloading. Namely, the inventory/sales ratio rose to 1.47 in December 2018 from 1.43 in November, and grew to 1.48 in February. This growing ratio shows that inventories are growing faster than sales, reducing import prospects for containerised goods on the transpacific trade lane.
What is more, after pulling out of the Trans-Pacific Partnership (TPP), the US is now looking to agree a bilateral trade deal with Japan. The US has a significant trade deficit with Japan, and after the opening of the Japanese market to EU exporters and TPP partners, US exporters may experience important pressure in keeping their share of the Japanese import market, unless the two countries can agree a deal that would enable US exporters the same access to the Japanese market as its EU and TPP partners.
In Asia, the flash Japanese manufacturing PMI in April indicates a third month of contraction at 49.5, due to weak demand both at home and abroad.
On 1 February 2019, the EU-Japan Economic Partnership Agreement applied. The agreement removes trade tariffs between the two trading blocs, and facilitates customs procedures, to boost more trade in both goods and services.
Furthermore, recent stimulus measures in China to tackle its slowing economy have been successful, with economic indicators indicating that economic activity has picked up.
As for South Korea, in March its exports were down for the fourth consecutive month. The manufacturing PMI achieved a six-month high in April, at 50.2. However, new orders are still falling. In mid-April the Korean central bank limit its growth forecast for 2019 to 2.5%. Now, ahead of the weakening economic prospects, the Korean government announced a stimulus package of USD 5.9bn. Some of this package went to Korean shipyards and shipowners.
Providing a final comment on the future of shipping trade, BIMCO stated that:
The escalation of the trade war hurts not only the US and Chinese economies, but also the global economy. Global trade is so interconnected that the effects are – and will continue to be – felt by many more countries around the world