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BIMCO’s latest Shipping Market Overview and Outlook Report: Macro Economics

World Cement,

Global economy

After lower than expected growth in the first half of 2014, the International Monetary Fund (IMF) has once more lowered its forecast for 2014. The IMF expects world growth to come in at 3.3% – down 0.1 points from its previous estimate in July. The downgrade happened despite improving US growth figures, as these were not able to offset the weakened development in the Eurozone and a number of key emerging markets. This news breaks less than three months after the last IMF update that lowered the 2014 growth projection from 3.7% to 3.4%.

The IMF has also lowered its growth estimation for 2015 from 4.0% in July to 3.8% now. This is in part due to the level of global investments, which have been low for some time now, putting a damper on higher growth in the near future. The IMF also warns of increased downside risks, in the main that the financial markets have been overly optimistic about the future and the fact that tensions are still brewing in the Middle East and between Russia and Ukraine.

The IMF also points out that with the current developments and with future risks in mind, stronger growth might take place but could also fall below expectations once again. The economic recovery is becoming more country-specific, driving the need for more country-specific reforms. The battle is against high debt and unemployment leftover from the crisis, as well as a low growth in future.


The US has come a long way since that first quarter where GDP dropped by 2.1% and is now the glimmer of hope in the latest report from the IMF. The world’s largest economy is set to grow 2.2% in 2014, 0.5 points higher than the July estimate. The increase is partly contributed to by the improved labour market, where 248 000 jobs were created in September, exceeding the economists’ expected 215 000. Unemployment now stands at 5.9%, down from 6.1% in August, the lowest figure in six years.

The 2.2% forecast of the IMF is now on a par with that of the Federal Reserve (FED).

The IMF expects the FED to start raising interest rates in mid-2015. Interest rates that have been near zero for the last six years. The Federal Open Market Committee (FOMC), the committee under the FED in charge of overseeing the nation’s open market operations, however, plans to keep interest rates low for a “considerable time”. It remains important that the financial markets understand the market assessments coming from the FED and the FOMC and interpret them correctly in order to avoid unnecessary turbulence that may endanger the overall mission of bringing around a sustainable economy. How long “a considerable time” turns out to be depends on the economic facts.

The level of inflation is still substantially below the 2% target and the labour market is not completely recovered, as too many people are seeking jobs they cannot find.


In China, they are still trying to recapture the former growth momentum. Various GDP growth estimates for 2014 are hovering around 7.0 to 7.4%. This reflects the uncertainty related to a gradual slowing of the Chinese economy. The country is coming down from past peaks with double-digit growth rates to a “new normal” lower growth level in the future, according to the People’s Bank of China (PBOC is the central bank of China). It remains true that a lower level of growth in China would still be substantially higher than growth levels in any of the advanced economies.

As reported by BIMCO in mid-September, the PBOC initiated an economic counter-strike as the number of weak macro-economic indicators mounted. The PBOC issued 500 billion Yuan (US$81 billion) worth of loans to the county’s five largest banks.  If judged by the Manufacturing PMI for September released at the closing of the month, the operation went well, as both measurement of the PMI were unchanged from the previous months. This indicated a stop to the sliding trend – at least for now.

Chinese imports dropped by 2.4% year/year to US$158.6 billion in August. Meanwhile, exports grew by 9.4%. Falling commodity prices are one of the reasons for the drop in imports, since imports are measured in value not quantity. That development left China with a new all-time-high trade surplus with the rest of the world of US$49.8 billion in August.

In Japan, the ongoing work to increase inflation expectations and expand the monetary base to make that vital economic turnaround continues. Moreover, the subsequent weakening of the exchange rate against the US$ and EUR should lead to more exports. Unfortunately, it also means the consumer pays more for their goods in the store. The latter is at the epicentre of the 2Q contraction of GDP in Japan that was down by an annualised 7.1%, as the April tax hike made consumer goods even more expensive. The poor performance in 2Q prompted the IMF to slash its forecast for 2014 GDP growth in Japan to just 0.9%, from the previously expected level of 1.6% in July.


The Euro Area still has a long way to go before the sustainable recovery arrives. Doing too little too late seems to haunt growth and employment in the wider European Union too. When compared to the unprecedented “kamikaze” monetary expansion carried out by the US FED and now embraced by Japan too, the initiatives taken by the ECB and individual member states of the Union to present markets with a convincing turnaround story seem tame.

It is thus fair to conclude that Europe has failed to deliver on key economic indicators and real economic progress. Moreover, the already low inflation rates (0.4% in August) and inflation rate expectations continue to challenge the Euro Area.

The three economic giants in the OECD-world: Japan, Europe and US, are at very different stages in their economic cycles. This is not really helping any one of them as poor performance in one end of the world limits the upside to the well performing at the other end in an interconnected trading environment.


In its last report, BIMCO expressed the hope of avoiding a photo finish at the end of the year to make the call whether 2014 would actually turn out to be better than 2013 in GDP terms. Now we know better: a photo finish is unavoidable.

Twenty-two months after projecting World GDP to reach 4.1% in 2014, the IMF now aims to hit bull’s-eye with its recent 3.3%. Who can blame then? No one can hide here. The advanced economies are revised down from 2.2% to 1.8% and the emerging and developing economies are downward revised, too, from 5.9% to 4.4%.

The only positive thing to take away from this seems to be the lower oil prices arising from weaker demand and higher domestic production in the US. Lower prices are good news for the stalling economies of the world seeking lower input costs to their economies.

According to Marine Bunker Exchange (MABUX), oil prices have been in a steadily declining trend since late June. This is also good news for the shipping industry, which is now experiencing the lowest bunker prices for 3.5 years. 

Written by Peter Sand, BIMCO Chief Shipping Analyst. This is an extract from the latest BIMCO Shipping Market Overview and Outlook Report. It has been adapted to meet World Cement’s house style.

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