The recent optimism has fortunately not completely evaporated following the latest series of less positive economic indicators from across the globe, including India, the US, Brazil and Spain. The EU debt situation creates a lot of uncertainty, not only as regards economic development but also regarding the political situation on both sides of the Atlantic Basin.
Firm action from China is expected to be just around the corner. China is about to boost the economy more actively than the ‘passive’ means taken in the past 4 - 6 months. Increased lending and approval of a significant number of infrastructure projects valued at about half the size of the November 2008 stimulus package is to be expected from Beijing. This kind of stimulus is likely to support growth in the short to medium term.
Crude oil is a commodity whose price is affected by the sum of all fears (and prospects) for the global economic course and it has lost lots of ground during May.
The relatively high oil prices are not helping to bring the recovery around anytime soon. Oil prices at this level are a barrier to economic growth. The recent drop helps only a little, in shipping terms a ton of bunker fuel is still priced at US$ 560. Coming down from US$ 700 is positive, but oil still remains much more costly that the fundamental supply and demand balance would imply.
The US GDP growth slowed from 3% in Q4-2011 to 1.9% in Q1-2012 y-o-y. For the full year, IMF expects the US to grow by 2.1% – up from 1.7% in 2011. The current US unemployment rate at 8.1% is the lowest since February 2009. More jobs are created almost every day, but the pace is much too low to bring back full employment any time soon. The ongoing recovery is a very slow one, reflecting the multiple challenges all over the world and the negative spill-over effect from one giant economic area to the next.
Recent figures from Japan proved strong, as the economy grew by 1.1% over the previous quarter. Private consumption increased for the fourth quarter in a row, but more importantly government investments also rose in the first quarter.
Chinese industrial production was raised by just 9.3% y-o-y in April, which is the lowest level in 35 months, while May figures rebounded somewhat to come in at 9.6%. This indicates that the global macroeconomic realities are biting China more than before.
It is vital that expansionary fiscal and monetary stimuli are used to counter this slow down and secure a soft landing that will benefit not just China but also the global economy.
The stimuli will be most welcome, as in early June, HSBC/Markit reported a seventh successive month-on-month decline in the overall new manufacturing business, leading to higher unemployment and overall poorer operating conditions. The HSBC/Markit China Manufacturing PMI stayed in contraction below 50, where it has been since November last year.
In India, GDP growth eased in Q1-2012 primarily due to a weak manufacturing sector performance. GDP growth came in at 5.3%. This 10-year-low figure compares to 7.8% growth in the same period last year and digs deeper than the 5.8% recorded in Q1-2009 in the wake of the current crisis.
There is still a long way to go for the EU. While the IMF updated its expectations to the EU GDP growth to 0.03% in April up from -0.1% in January, the region is still struggling. Markit reports that the May Eurozone Manufacturing PMI fell to a 35-month low of 45.1 down from 45.9 in April.
The muddy political landscape in Greece has raised the stakes in the ongoing Greek tragedy. Will the new government stand by the current deal – perhaps with some amendments, remains the big question. Note that Greece is fully funded (outside the international market) in coming years if they reaffirm the deal they have with IMF/EU/ECB.
Strong political will, in particular but not exclusively in Europe, will be needed in spades. The challenges are still clear and present before the world’s economies can enjoy a sustainable recovery with solid growth going forward.
The increased focus on sanctions such as those against Iran is putting greater pressure on shipping companies. Despite being a familiar challenge for the industry, the magnitude and complexity of the sanctions has increased over time and is likely to continue down that road. The breach of a sanction may have serious consequences to a shipping company and its future business. On 1 July, the EU sanctions on Iran will become fully effective, including an oil embargo. Politically, the situation has recently become more complex as the US has exempted seven nations for six months from its Iran sanctions, including India and South Korea; this is adding further uncertainty to the market.
JPMorgan Global Manufacturing & Services PMI data from May indicates that the world is entering a phase of softer growth during mid-year. The manufacturing sector posted the slowest output growth in five months, while the service sector was able to hold up activity comparably well.
The uncertainty that keeps the recovery from taking off is also hampering shipping demand. The blurred situation, with a toxic mix of little or no trust in certain nations’ ability to pay their dues and high unemployment, is the main culprit.
Written by Peter Sand, BIMCO.
This is the first of a four-part summary of the BIMCO Shipping Market Overview & Outlook 2012-13. The full report can be accessed here.
Read the article online at: https://www.worldcement.com/europe-cis/05072012/macroecomics_bimco_shipping_market_overview_outlook_1156/