Shaky economic outlook a concern

The global economic outlook remains shaky despite recent pockets of resilience, according to economists polled by Reuters who said that a rise in protectionist trade policies would hamper trade growth in the years ahead.

This is an about-turn from those economists who just three months ago cited a pickup in international trade as essential for improvement in the world economy.

“Clearly, the geopolitical, political and economic risks facing the world are many and multifarious, and it is no easy matter to isolate those that seem most apparent to us,” Mike Carey, chief economist at Crédit Agricole CIB, said in a note to Reuters.

“While 2017 does not look as if it will be the year of living dangerously, 2018 could well be more fraught.”

Speculation that US President Donald Trump will enact bold stimulus and reflationary measures during his time in office has pushed up US ten-year treasury yields by around 50 basis points since election day, lit a fire under the dollar and sent US stocks to record highs.

But concerns over his stand on trade are starting to undermine investor sentiment, revealed the Reuters-polled economists. And, since his victory in the US election, expectations of protectionism have driven investors out of emerging markets.

Nevertheless, results from the poll also revealed that Brazil will come out of its worst recession ever this year, albeit slowly and still leaving millions unemployed.

China is expected to grow by 6.5% this year as the government keeps up policy support despite expectations for sluggish world trade and, again, Trump’s trade policy.  

India, however, appears to have lost momentum after the country’s Prime Minister Narendra Modi introduced a ban on high-value currency notes which hurt demand and businesses.

An unhelpful hand

Global economic growth is also a concern for BIMCO, which said that the longer global economic growth remains weak and lacks investment, the lower future growth potential for shipping.

In its January 2017 report, The Shipping Market in 2016 and Looking Forward, BIMCO notes that for eight years, the world has struggled to cope with huge changes and challenges brought around by the crash of the financial market in 2008.

“The full restoration of shipping markets will need several years of solid improvements to lift fleet utilisation rates,” it says. “Sector overcapacity almost everywhere must be reduced. Government support for any industry – including shipping – might seem like a good thing, but direct subsidies from governments in fact have a negative impact on the global shipping industry as they affect free trade and undermine the level playing field for businesses.”

In pure economic terms, BIMCO says that 2016 saw Europe improving, the US stagnating and Japan at a standstill. As a result, it has not seen much global change aside from some inter-regional trade flows and “there has been no real growth of demand on a broader scale”, it says.

Will the world grow its GDP in 2017 in a way that will benefit shipping, asks BIMCO. “Probably not,” it says, “as global GDP growth is currently driven by service sectors and developing or emerging economies which result in a lower GDP to trade multiplier and thus generate a lower level of shipping demand than we have been accustomed to in the past.”

Signs of revival

Following a terrible year in 2016 for the dry bulk shipping industry, BIMCO says that it is vitally important that shipowners handle the supply side of the market with “great care” in 2017.

Richard Clayton, chief correspondent, maritime and trade, IHS Markit, shared a slightly more optimistic outlook for the dry bulk sector in a video posted on the company’s website.

“Unusually,” he says, “all sectors of the shipping industry are weak or are weakening as we move into 2017, and this has implications for brokers, insurers, agents and everybody involved in supplying the global maritime industry.

“We have a tendency to say that the shipping industry will pick up in about eighteen months’ time but this is always proved to be too optimistic so what I would like to do is not look at the markets as an indicator of 2017 but to try to identify signals of retrenchment and signals of renaissance in order to find a realism for our shipping industry.”

One area where Mr Clayton says we are beginning to see the signs of revival in 2017 is the dry bulk sector. “This might be surprising because dry bulk hit the floor in 2008 and ever since then it has been struggling to achieve rates that cover operating costs let alone to provide some contribution to capital expenses,” he adds. “But as a result of that, there has been a surge of ships being sold for recycling and no incentive for newbuilding orders.

“So over the course of about eight years, the fleet has started to align itself more closely with customer demands. The capesize sector and the panamax sector have average age profiles of about seven years, and these ships are increasingly more cost effective than they were five years ago. The supramax sector is still growing but this is a very flexible type of ship and its able to be used in not only developed worlds but also emerging world.”

Mr Clayton concludes the dry balance really is showing signs of improvement, and improvement that he believes will show some health in 2017.