Macro Economics - GDP and world trade growth downwardly adjusted as the double-dip-ghost refuses to leave the stage.

Overview

2011 started out with a lot of optimism fuelled by a surprisingly better-than-expected growth in the second half of 2010. As the year has progressed it has turned into a paradise lost rather than the sustainable recovery we were all hoping for. Since the January issue of World Economic Outlook was released, IMF has reduced the growth expectations for the Global GDP and now expects only 4.0% growth in 2011. If this forecast holds true, it will be the slowest global growth since 2003 – if you discard the crisis-years of 2008 and 2009. Slashing not only its 2011-estimate, the 2012 outlook has been further lowered, cutting a 0.5%-point off the previously expected 4.5%. Growth is not only slowing down, it is also more unevenly distributed. The growth in advanced economies is now set for 1.6% as compared to an estimate of 2.4% 20 months ago. In contrast, Emerging and Developing economies are up 0.1 to reach 6.4 as compared to 20 months ago.
Listen to podcast of this article

Global Economy:
2011 started out with a lot of optimism fuelled by a surprisingly better-than-expected growth in the second half of 2010. As the year has progressed it has turned into a paradise lost rather than the sustainable recovery we were all hoping for. Since the January issue of World Economic Outlook was released, IMF has reduced the growth expectations for the Global GDP and now expects only 4.0% growth in 2011. If this forecast holds true, it will be the slowest global growth since 2003 – if you discard the crisis-years of 2008 and 2009. Slashing not only its 2011-estimate, the 2012 outlook has been further lowered, cutting a 0.5%-point off the previously expected 4.5%. Growth is not only slowing down, it is also more unevenly distributed. The growth in advanced economies is now set for 1.6% as compared to an estimate of 2.4% 20 months ago. In contrast, Emerging and Developing economies are up 0.1 to reach 6.4 as compared to 20 months ago.


 
Thought-provoking as the following exposition may seem, BIMCO subscribe to the view propagated by The Economist (extract of which in following paragraphs); Before the Summer holiday season the world economy was still relatively okay, but the recent reassessments of growth potential, especially in the developed world, have highlighted the fact that the crisis is not over and the risk of a double-dip is still lurking. Forecasts for 2012 have been slashed both on GDP growth and oil demand.

In 2008 the world economy was saved from what may have led to a depression by a bold and co-ordinated plan to shore up banks and counter the slump with fiscal and monetary stimulus. Today, there is no boldness (the Euro-zone is the epitome of politicians doing too little, too late). There is no co-ordination. And to the extent that policies have a common theme, it is the wrong one: politicians across the developed world are taking too short-term a view on fiscal austerity – a bout of budget-cutting which will only increase the risk of another recession.

Wanted: a growth agenda. It does not have to be this way. Echoing the spirit of 2008, policy-makers could adopt a co-ordinated strategy to boost growth. Two priorities stand out; firstly, a recalibration of fiscal and (in some places) monetary policy; secondly, a big push on supply-side reforms, from freeing trade to slashing red tape. Adjusting fiscal policy does not mean simply doling out more stimuli. The trick is also to improve public finances over time without stepping too hard on the brakes today. A serious growth agenda should involve productivity-boosting reforms. Measures such as cutting trade barriers or getting rid of excessive regulation benefit free trade everywhere. Such an agenda won’t transform the rich world’s prospects. The recovery will still be fragile and sluggish. But it has a far better chance of avoiding both recession and stagnation than today’s policy mix. It is high time to change course.

US:
The struggle to avoid a double-dip continues in the US following the newly-expressed doubt over US loan credibility that reached its preliminary peak with Standard and Poor’s downgrading of US Treasury debt from being amongst the safest investments in the world to being only amongst the second best. Amongst some of the critical issues that led to this downgrade was “the difficulties in bridging the gulf between the political parties over fiscal policy”.

The recent significant hair-cut in US growth perspective from IMF goes for both 2011 and 2012, signalling by all means that the issues combined represent more than just the “soft patch” everybody was hoping for. The slowdown in the US has affected mainly the shipping of containerized goods but also tanker shipping – products primarily.

Should the just passed “back-to-school” season (the second largest selling period of the year after the Christmas season) provide any guidance for the coming Christmas season, we are in for another disappointment since necessity, not desire, drove this year’s back-to-school season purchases. The sale performance of these seasons has important implications for the overall US economy as consumer spending accounts for about 70% of US GDP, which scarcely grew in the first half of 2011.

Asia:
Inflation in China appears to have passed the peak, with August numbers down at 6.2% from 6.5% in July. The slowdown in inflation is positive and expected to continue in coming months. It proves that Chinese authorities are about to harvest on the austerity measures carried out to make a soft landing for the economy in general and cooling of the strong inflationary tendencies on foodstuffs in particular. The tightening of the monetary policy has also contained growth, which however remains at a very high level.

From the peak beyond 8% in first half of 2008, inflation slid to a sub-zero level, as China experienced deflation during most of 2009. In January 2010, inflation stood at 2% and since then has been highly affected by strongly rising food prices.

Even though China’s share of World GDP is “only 13.6%” its share of Global GDP growth is close to 1%-point. This is almost equal to the total GDP growth contribution by the Advanced economies that represent 52.1% of the World GDP. The other major Asian economy, India, represents a correspondingly impressive contribution.



China Manufacturing PMI from Markit/HSBC was unchanged in September at 49.9 and by that it failed to deliver the positive trend as hoped for. The trajectory of the PMI was reversed in August after the Index gained 0.6 on July figures to end a year-long sliding tendency. Over the past year, it appears that China has become the leading indicator for manufacturing industry globally. This in turn means that the positive surprises from the Eurozone and US that could be expected are about to drift away before they ever materialized.

EU:
EU financial worries are on-going and the task to put some safe distance to the ghost of recession has gone up. But where should the upswing come from when governments consolidate as public stimulus is fading away and consumers at the same time spend less and save more.

Euro area composite manufacturing PMI fell from 49.0 in August to 48.5 in September. Most noticeable is the persistent decline in new orders and new export orders. This is a worrying pattern that has developed also in the China Flash Manufacturing PMI from Markit/HSBC.

Outlook:
Besides revised GDP growth estimates, IMF has also revised its outlook for growth in World Trade Volumes (goods and services) downwards to 7.5% (-0.7) for 2011 and down to 5.8% (-0.9) for 2012. As Global GDP and World trade is about 90% correlation, the lower world trade at an equally growing global GDP doesn’t bode well for the shipping industry.

Unemployment is set to remain a challenge across the globe, as tightening fiscal policies make job creation harder to do. But on the other hand, since job creation is a vital basis for sustainable growth for an ever-increasing world population, jobs must be created worldwide either publically or privately to get the positive cycle restarted.

As the global economy now looks weaker than just a couple of months ago, oil prices have lost some terrain also. Brent crude oil has come down from USD 115 per barrel by mid-September to USD 104 on 26 September. A lower oil price means lower costs, which in turn may trigger investments and growth.

 

in Copenhagen, DK
 

ELSEWHERE ON BIMCO

Contracts & Clauses

All of BIMCO's most widely used contracts and clauses as well as advice on managing charters and business partners.

Learn about your cargo

For general guidance and information on cargo-related queries.

More about cargo

BIMCO Publications

Want to buy or download a BIMCO publication? Use the link to get access to the ballast water management guide, the ship master’s security manual and many other publications.