No respite for shipping from the slow growth of the global economy

Limited economic growth potential and a slow recovery pace of the global economy only ease the pain in the global shipping industry somewhat. While the industry continues to suffer from oversupply in the freight market, the IMF now projects the demand side to be even less accommodative than previously assessed.

In the just released January World Economic Outlook update, the International Monetary Fund (IMF) adjusts the projected growth for both 2015 and 2016 by -0.3%. The Fund now expects global GDP to grow to by 3.5% in 2015 and 3.7% in 2016, up from 3.3% in the past two years.

Chief Shipping Analyst at BIMCO, Peter Sand says:

“The downward adjustment was expected, but it hits hard none the less. The global shipping industry needs much stronger support from the demand side for gradually improving the trouble with too many ships chasing too few cargoes.

“This is not what we need, however we cannot shy away from the fact that too many ships is primarily an internal obstacle that we have to deal with. Amongst the elements that are effect full to work with to improve the fundamental balance are: slow steaming, recycling of commercially sub-standard ships and adding capacity by using the second-hand markets”.

The IMF adjust the US significantly upwards and US thus contributes extensively to the higher economic activity in the Advanced Economies. Euro Area too contributes to higher growth in Advanced Economies but is downward revised by 0.2% to 1.2% in 2015.
In the Developing and Emerging Economies, China and Russia takes the headlines. As Chinese policymakers continue to reduce the risks from the housing market and shadow-banking sector, slower growth follows in the wake. Focus on the transition from an investment driven economic growth to a consumption driven one also lowers GDP growth going forward. However as the World’s second largest economy is still growing by 6.8% in 2015, down from 7.4% in 2014 the high growth remains a key support to global shipping demand.

Despite being a minor economy in itself, the geo-political uncertainty that originates from Russia affects shipping negatively. Dry bulk exports, imports of containerized goods as well as trading in oil products are experiencing a lot of uncertainty as sanctions bite and trading conditions suffer. IMF expects that the Russian economy will shrink by 3.0% in 2015.

“The lower oil price is good for shipping as well as for the oil importing countries as it bring costs down and boost demand, whereas the lower Chinese growth rate affect the entire intra-Asian trades negatively.

“Lower Chinese growth also means lower commodity prices as we have seen in particular for dry bulk commodities in the past year. While this may limit the revenue in exporting nations, lower commodity prices in general affect shipping demand positively“

, adds Peter Sand.

Source: BIMCO