Hesitant economies may restrain bulk trade

Around the world raw materials suppliers, shipowners and port
operators are looking anxiously for signs pointing to continuing
global economic recovery. After last year’s worst global recession in
the post-war era, most countries have made solid progress. But
recently some indicators have been less encouraging and doubts
have multiplied.
It now seems possible to foresee a temporary sharp deceleration
in economic activity in many countries, before growth regains
momentum through 2011. Slowing output is envisaged within the
‘advanced’ economies group (Europe, Japan, Korea and USA). Among
emerging economies as well (including China) limited slackening
could occur. How will this affect dry bulk trade? Some adverse
ADVANCED ECONOMIES HESITATING
Forecasts of annual global economic output growth published by the
IMF at the beginning of October suggest little cause for alarm.
World GDP is expected to increase at a respectable 4.8% rate in
2010 as a whole, following last year’s contraction of –0.6%. Next
year a slightly less vigorous 4.2% rise is predicted.
Within the advanced countries group which suffered a severe
–3.2% downturn in 2009, GDP is expected to grow by an average
2.7% this year and 2.2% in the following twelve months. Turnrounds
in the USA, the principal European economies, Japan and South
Korea are supporting the upturn. However, these recoveries are
relatively weak. And, according to the IMF, the annual forecasts
“mask a temporary slowdown in activity” which is having a
significant impact. During the first half of 2010, many countries in
this group performed better than forecast. Bolstered by
government policies that supported spending, and benefiting from
restocking and reviving capital investment, economic activity picked
up and expanded by an estimated average 3.5% annualized.
This year’s second half GDP growth in the advanced nations is
likely to prove much slower, at an average 1.75% annualized, based
on IMF calculations. Explanations for the short-term setback include
a slowing inventory rebound after robust restocking, withdrawal of
fiscal policy (government spending and taxation) stimulus, and
SUPPORTIVE EMERGING ECONOMIES
By contrast, within the emerging countries group, including China
and India, prospects for economic output through 2011 still look
very promising, although a limited slackening from recent very
strong performances may evolve. Many of these economies were
less affected by the global recession.
Consumer spending and capital investment (government and
business) in Asia and other developing regions are pushing recovery
into a self-sustaining phase. This pattern is reflected in the IMF
economists’ view that “robust growth in many emerging market
economies will pull the (global) recovery along over the near term.”
Of particular interest for dry bulk trade is events in China and,
increasingly, India given their large impact on commodity import
demand.
China has grown strongly this year and the outlook is
encouraging. GDP in the third quarter of 2010 was 9.6% higher than
seen in last year’s same period, a slightly less rapid increase than the
10.3% rate achieved in the second quarter. The government has
been taking steps to control expansion and prevent ‘overheating’, by
limiting credit availability, cooling-off the property market and raising
interest rates.
India also has been experiencing vigorous progress with growth
rates almost as high as those recorded in China. Solid consumer
spending and business investment could enable GDP to increase by
BULK TRADE IMPACT
This brief overview of economic trends suggests that the global
outlook is not dire, and the risks of a so-called ‘double-dip’
recession seem to have faded recently. But evidence points to some
short-term weakening now under way among the advanced
economies. Temporary setbacks could continue into the early
weeks of next year, after which a strengthening trend may resume.
A wide range of industries using imported raw materials, fuels or
semi-finished products is sensitive to short-term changes in the pace
of economic activity. Steel mills, aluminium plants, power stations,
and manufacturers of other industrial products may be affected by
flattening or weakening output trends, if GDP growth in a number of
countries falters sharply for one or two quarters.
Adverse effects on related imports could have a noticeable
restraining influence on dry bulk commodity movements, including
iron ore, coking and steam coal, bauxite/alumina, steel products,
steel scrap, forest products and cement. But more specific factors
influence individual trades as well. Consequently it is often difficult
to identify the precise impact of a slowdown (or acceleration) in the
growth of general economic activity.
One prominent industry where changing short-term economic
growth patterns are often clearly reflected is steel production. In a
number of countries steel output is already showing distinct signs of
levelling-off, after recovering from the very depressed volumes seen
in the first half of last year. This feature is evident in Japan, the
European Union and South Korea. Elsewhere, evidence is more
tentative, such as indications of slackening aluminium production in
some areas which import raw materials.
The overall impact may not necessarily be very severe, although
it seems likely that there could be some noticeable loss of
momentum for a short period. But economic growth forecasts have
a very mixed record of reliability and frequently prove inaccurate.