Macro Economics - Many uncertainties, but things go in the right direction

Macro Economics - Many uncertainties, but things go in the right direction


At this point in time, everything points towards a stronger and expanding global economy for 2013. This is the widespread opinion, reinforcing the belief that 2012 is the final trough of what might turn out to have become a W-shaped recovery.

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Moving more firmly but still slowly in the right direction, as recent actions support the moderate positive outlook for 2013 and onwards. Many uncertainties remain to be dealt with.

Global economy:
At this point in time, everything points towards a stronger and expanding global economy for 2013. This is the widespread opinion, reinforcing the belief that 2012 is the final trough of what might turn out to have become a W-shaped recovery. The prospects are underpinned by the recent strong actions by the Central Banks of the EU, Japan and the US, as well as decisive action to reverse the slowdown in growth by the Chinese Government. This bodes well for the near and mid-term future growth potential to be unleashed. But we are probably better off curtailing our excitement, as a much stronger global economy is needed for 2013 and beyond to absorb the overhang of tonnage and get shipping back onto a more normal and sustainable supply/demand ratio.

We have finally seen will and decisiveness in the actions taken by the monetary institutions, but they must be complemented by on-going political courage and innovation to balance austerity measures with initiatives that will create positive momentum to the strengthening of a very fragile economic growth in the world economy.

The slowing global output growth has led WTO to downgrade their 2012 forecast for world trade expansion to 2.5% from 3.7% and to scale back their 2013 estimate to 4.5% from 5.6%. Pascal Lamy, Director-General of WTO, stated on this occasion that “In an increasingly interdependent world, economic shocks in one region can quickly spread to others. Recently announced measures to reinforce the Euro and boost the growth in the US are therefore extremely welcome”. He continued by emphasising that we are far from being home and dry when he said “… more needs to be done. We need a renewed commitment to revitalise the multilateral trading system which can restore economic certainty at a time when it is badly needed. The last thing the world economy needs right now is the threat of rising protectionism”.


The JPMorgan Global Manufacturing PMI, compiled by Markit, rose for the first time in five months but remains close to a three-year low, now at 48.9. Business conditions continued to deteriorate in September, led by weakness in the Eurozone and a stagnation of global trade flows. A slight rise in the PMI provides for some hope that the downturn may have bottomed out, though it remains too early to tell whether global manufacturing has truly turned the corner.

More generally, only 10 of the 25 surveyed countries in the JPMorgan Global Manufacturing PMI showed a positive momentum in business conditions in September, led by Mexico, India and Russia.

Acknowledging that the low interest rate has undermined regular monetary policy, the Fed has used quantitative easing to stimulate the economy. On 13 September, the US Central Bank (aka the Fed) launched their third quantitative easing programme (QE3), allowing purchases of mortgage-backed securities at a pace of USD 40 billion per month for an unlimited period of time. The Fed obviously hopes that the initiative will create a stronger economic recovery, but critics are concerned that the programme will depreciate the value of the US Dollar, and thus increase the cost of imports.

Unlike its two previous bond-buying sprees, the Fed said it would only purchase mortgage-backed securities, hoping in part to re-erect a suffering housing sector that Fed Chairman Ben Bernanke called “a missing piston” in the US recovery.

On the positive side, it is worthwhile noting that the manufacturing industry in the US is a provider of growth, unlike the situation in the Eurozone, Japan and China. This was revealed in the September ISM index that reversed the recent negative trend to come in at 51.5, up from 49.6 back in August.

China has experienced tremendous GDP growth during the last decade and in an effort to counter the recent slowdown in growth, the Chinese government responded by announcing a 1 trillion Yuan (USD 157 billion) investment plan in various infrastructural projects. The stimulus package has to some extent been reflected in the most recent positive HSBC Manufacturing PMI for China.

Also, Japan has decided to carry through a huge stimulus package worth JPY 10 trillion (USD 126 billion), making this the 8th round of quantitative easing in Japan which brings the total accumulated sum to JPY 80 trillion (approximately USD 1 trillion) in the battle against deflation and the economic crisis.

The economies south of the Alps are still suffering, and if the Spanish government bonds are downgraded to speculative grade, Spain will probably have to ask the EU for a bail-out. The Spanish Government recently announced cut-downs of EUR 40 billion, indicating that an expansive fiscal policy is not an option for Spain as a way of escaping the crisis. The cut-down signals that Spain is prepared to fulfil the requirements needed to receive a bail-out by the EU via the ESM, which is set to be the new permanent European bail-out fund, with a capacity of EUR 500 billion.

On 6 September, the European Central Bank (ECB) launched a new programme to purchase sovereign bonds in the secondary markets that are issued by members of the 17-nation Eurozone. An outright monetary transaction (OMT) is a new tool presented by the ECB, which enables the ECB to purchase unlimited amounts of sovereign bonds. The OMT has been launched to ensure that the struggling economies in the Eurozone can acquire financing on fair terms. Transactions will be focused on the shorter part of the yield curve and in particular on sovereign bonds with a maturity of between one and three years. The recent drop in the interest rate of the 10-year Spanish Government Bond is largely attributed to the introduction of the OMT, according to industry experts. No ex ante quantitative limits are set on the size of Outright Monetary Transactions.

The bad economic situation in Europe is clearly leaving indelible traces across the globe, as imports are significantly down compared to last year. Container shipping is mostly affected by this.

The optimism for improved global economics that caught fire at the start of the year has encountered increasingly strong headwinds over the Summer. Output and employment data in many developed economies have continued to disappoint, as well as slower growth in exports globally.

According to the WTO, the European sovereign debt crisis has not abated, making fiscal adjustment in the peripheral Euro area economies more painful. Figures for world trade include trade between EU countries (i.e. EU intra-trade), making them highly sensitive to developments in this region. All of these factors have contributed to an easing of global trade growth, which slowed to a crawl in the second quarter.

BIMCO continues to believe that 2013 is likely to progress compared to 2012 in terms of higher global GDP and improved global trade. The recent moves by the US Fed, the European and Japanese Central Banks, as well as the Chinese Government, give reason to believe that a brighter outlook is in sight. But a lot more needs to be done to support recent initiatives. The PMIs, unemployment, export figures and the continued difficult financial markets are telling their own stories! The initiatives must firmly create a climate that will stimulate investments and consumer confidence for us to believe that we have finally set course for a sustainable and lasting recovery.

Inflation is likely to become a factor on the road to recovery, mainly due to the extreme expansive monetary policies that have been a vital weapon in the fight against the crisis. The true consequences of these policies remain to be seen but could have a boomerang effect if not handled correctly. The good news is that for now, inflation is not a problem in any of the economic centres.

in Copenhagen, DK


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