Much-needed help to lift global economic activity provided

Overview

Economic growth in the Eurozone is still struggling to gain a footing, as inflation remains dangerously low. The European Central Bank (ECB) aims at keeping the inflation rate just below 2%, but in October 2014, it was just 0.4%.

Economic growth in the Eurozone is still struggling to gain a footing, as inflation remains dangerously low. The European Central Bank (ECB) aims at keeping the inflation rate just below 2%. However, in October 2014, it was just 0.4%. Bringing inflation back on target as quickly as possible is essential, according to the President of the ECB, Mario Draghi, who in a speech last week signaled that recovery in the coming months was unlikely and that more stimulus is on the way.

“We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires,” the ECB president said, at a conference in Frankfurt on Friday. Some inflation expectations “have been declining to levels that I would deem excessively low,” he said.

The ECB has already started buying asset backed securities (ABS) in order to encourage bank lending and help revive the economy. Furthermore, Mr. Draghi indicated a willingness to broaden channels even more in order to boost the economy, if inflation does not improve, refusing to exclude government bond buying.

So far, the ECB has been reluctant to implement the kind of quantitative easing seen used in the US, UK and Japan with large-scale purchasing of government bonds, mainly due to steady resistance from the Eurozone’s largest economy, Germany.

China also decided to step up its stimulus measures last week by cutting interest rates for the first time since 2012. China is estimate to need an economic growth of 7.2% to keep unemployment stable and third quarter data showed the economic growth had slowed to 7.3%.  Cutting the rates for fear of growth dipping even further and missing the target of 7.5% this year has made it clear that the monetary policy of the Chinese central bank from now on could be more open to further stimulus measures.
  
Chief Shipping Analyst at BIMCO, Peter Sand, said:
“The need for stimulus action in Europe has been evident for some time now. Unfortunately, it still seems as if the biggest gun of them all is still not being used. Too little, too late, remains the writing on the wall for the European Central Bank's initiatives to turn around the devastating economic performance seen across the Euro-area.

"For shipping, the interest rate cut is welcome, as lots of commodity imports depend on affordable credits. Moreover, China is the main locomotive for economic growth, together with the US. Having that vital balance kept in place is good for the demand for seaborne transportation.



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