Macro Economics - global economy is expanding, but some regions fall behind

Overview

The global economy remains on the expansionary track at the start of 2013. The positive development is underpinned by rising global employment, a faster new order inflow and a higher output of services and manufactured goods.

Improved financial conditions in conjunction with stabilising policy actions paves the way for the global recovery to maintain traction.

Global economy:
The global economy remains on the expansionary track at the start of 2013. The positive development is underpinned by rising global employment, a faster new order inflow and a higher output of services and manufactured goods. Most major economies all contributed to the composite Purchasing Managers Index (PMI) growth, while Japan and the Eurozone continue to find their manufacturing sector in contraction. As global manufacturing PMI is a leading indicator for global industrial production, which is closely linked to shipping demand, BIMCO see this overall improvement as a support to shipping – dry bulk in particular, but also tanker shipping, and to a smaller extent container shipping.

In their January World Economic Outlook Update the International Monetary Fund (IMF) said that they expected the world economy to expand by 3.4% (annualised) in the first quarter of 2013; up from 3.0% in the last quarter of 2012. While the growth in Q4 2012 was entirely due to the developing economies, it is believed that the advanced economies will contribute to a quarter of the expected growth in Q1 2013. This is in line with previous BIMCO expectations as regards the distribution of global growth.

US:
The American economy is still fragile, as witnessed by the recently released numbers from the Bureau of Economic Analysis. US GDP fell by 0.1% in the fourth quarter of 2012 after increasing by 3.1% in the third quarter. Two of the main reasons for the fall were lower inventory stockpiling and an unprecedented fall in military expenditure.

The fundamental job creation is still on track, adding jobs every month. In January no less than 157,000 jobs were created. Another piece of positive news was that revised estimates for 2012 showed greater job creation at the end of last year than first reported. The US actually added a whopping 247,000 jobs in November and 196,000 in December; a combined 127,000 jobs above earlier estimates. In Washington D.C. the politicians voted to temporarily suspend the debt ceiling until 19 May, allowing the US borrowing limit to exceed USD 16.4 trillion. During the process, the Republicans maintained their stance on cutting public spending, which could endanger an imminent GDP recovery in the United States.

On the positive side, we find that the Markit Manufacturing PMI increased to 55.8 in January up from 54.0 in December, suggesting that the manufacturing sector in the US remains a vital driver. The US economy could also benefit from the latest contribution to the Quantitative Easing programme. Shortly after the release of our last report, the Federal Reserve announced an expansion to their QE programme of USD 45 billion. The expansion, launched in January, was prepared to improve the state of the US job market.

Asia:
All eyes are on Japan these days, as Prime Minister Abe tries to kick-start the Japanese economy in a joint action with the Bank of Japan, by some called “Abenomics”, focusing on print and spend. Amongst the instruments that are planned to be in use are a higher target for inflation and an upgrade of the Asset Purchase Program (APP) to an “open-ended FED-style” support of government bonds. Whether this will work fast and forcefully enough to prevent a Japanese triple-dip is still subject to uncertainty. But the financial markets obviously like the rhetoric if you can judge by the development of the Nikkei 225, which was up by 28% during the months of November-January. In the same period, the Japanese Yen has weakened 16.5% against the US Dollar – a depreciation which is very positive news for the nation’s shipbuilding industry. The Yen is now at the lowest level seen in three years at USD/JPY 93.85.

The turnaround in China seems to be certain now. Following seven successive declines of GDP-growth, the fourth quarter of 2012 proved stronger than previous ones. GDP was estimated to have risen by 7.9% y-o-y in Q4. The government stimulus throughout 2012 has helped the turnaround to materialize.

With the “hard facts” of a turnaround, we now see proof of what has been indicated by stronger and stronger data from Manufacturing PMI, power generation, goods transported by rail, as well as port activity during the last months of 2012.

EU:
The picture of a Eurozone in recovery keeps developing in a slow but positive fashion as the decline eases. Latest figures on Eurozone Composite PMI from Markit show an index hitting 10-months high in January at 48.6, up from 47.2 in December. Although the level tells us that the Eurozone remains in economic contraction, the numbers have now improved three months in a row. The January outlook from the IMF has adjusted expected growth in EU-27 from 0.5% to 0.2%, highlighting the severity of the matters at hand to deal with.

When looking beyond the headlines, manufacturing production and service sector business activity both declined, but at the slowest rates since last March. The growth is, however, very unevenly distributed, with Germany and Spain being the strong positive drivers whereas the downturn in France has still not come to an end.

In terms of employment, which is a vital indicator for future consumer demand, the Eurozone labour market took a deep dive, as jobs were cut in January at the fastest rates the last three years. As the darkest moment is just before sunrise, this is hopefully the turning point for employment. As consumer demand hesitantly picks up, so will especially European demand for containerised goods, while industrial recovery is likely to spur demand for dry bulk and oil tanker segments.

Outlook:
While global GDP growth for 2013 is downward adjusted by 0.1%, the world output is still set to jump from 3.2% in 2012 to 3.5% this year according to IMF January projections. The marginally slower growth is seen across the advanced as well as the developing economies.

While global financial conditions have improved further during the last quarter of 2012, a broad set of trade and global industrial production figures implies that global economic growth during the final quarter of 2012 did not continue the positive development from Q3.

Recent policy actions in the Euro area as well as in the US have clearly minimised the risk of another acute credit crisis.

in Copenhagen, DK

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