Home » Breaking News, Maritime » Economic recovery slow, uneven amid greater uncertainty—BIMCO

The shipping industry is unlikely to see a significant increase in demand, even as economic recovery has begun with governments easing restrictions after the shock of the pandemic, the Baltic and International Maritime Council (BIMCO) forecasts.

Many nations recorded their largest recorded drops in economic activity in the second quarter of the year after smaller contractions in the first quarter—which, combined, has left large parts of the world in a recession.

As most governments have eased their containment measures and are using a more local approach to target flare-ups, the second quarter is likely to have been the quarter in which economies were most affected by the pandemic, as many workers have since returned to factories and consumers to shops and restaurants, BIMCO noted in a September 8 analysis.

“The recovery will not be spectacular, however, given the public health restrictions still in place, greater uncertainty and higher unemployment,” said BIMCO’s chief shipping analyst Peter Sand.

Asia’s export to dip

China bucks the global trend as the only major economy to see growth in its industrial production compared to last year. Others—such as the EU, the US and Japan—are, up to July, still experiencing double-digit drops in industrial production compared to last year.

After a 6.8% drop in the first quarter year-on-year, the Chinese economy grew by 3.2% in the second quarter compared with Q2 2019, indicating a return to growth, though below the 6% China had been used to. Part of this growth is because of the broad range of stimulus measures that the Chinese government has launched to keep the economy going and ensure continued employment.

Meanwhile, BIMCO said all Asian export nations will see a “double dip” as lower export orders bring down their earlier recovery. “The delay from the pandemic means that, while some of Asia is reopening, they are economically limping, as many of their trading partners are still in economic crisis.”

Japan, already in a recession before the pandemic really hit, has also seen its economy badly hurt, despite an effective response to the virus. As well as lower domestic spending, Japan is heavily dependent on foreign demand. A recovery in China boosts demand from Japan’s biggest export market, but a true pick-up can only occur once there is a sustained recovery in the US and other major consuming nations.

The major trading hubs of Singapore and Hong Kong saw their economies shrink by 13.2% and 9% respectively in the second quarter. Both are heavily reliant on the global economy and trade performing strongly, which is not currently the case.

India is facing a rapid increase in coronavirus cases and, with the severity of lockdown measures varying by state, a recovery in the whole economy still appears a way off. In June, the International Monetary Fund forecast a 4.5% fall in Indian GDP in 2020—which is now just a best-case scenario.

Europe, US badly hit

In Europe overall, the economy fell by 14.1% in the second quarter of the year compared with the same quarter last year. Spain was the worst affected, with a 22.1% drop in GDP. France and Italy take the runners-up spots, with declines of 19% and 17.3%.

Across the EU, many industries that provide demand for shipping have been hard hit, said BIMCO. One of the largest of these is the German car industry, which was brought to its knees in April, when only 11,287 cars were produced, a 97.2% drop from April 2019. The easing of restrictions since then has resulted in car production rising to 334,000 cars in July, though this still leaves accumulated production down by 35.8% in July.

“Better news for shipping could be found in July, when the eurozone manufacturing PMI posted its first reading above 50 (51.8) in a year and a half. Month on month growth was registered in output as well as new orders. However, employment continued its decline, with cost cutting still in focus as manufacturing remains stuck far below pre-pandemic levels, and the outlook is bleak,” said Sand.

The US, the world’s largest economy, is also suffering the largest COVID-19 outbreak. GDP fell by 9.5% in the second quarter of the year compared with last year. Personal consumption expenditure fell by 10.7%. Exports were down 23.7% from last year and imports fell by 22.1%. The latter development was especially felt by container lines on the trans-Pacific, as well as trans-Atlantic.

The worsening COVID-19 outbreak in the US has stalled the number of passengers flying, which had previously been increasing from its low point at the height of the crisis. “The collapse in flight passenger numbers shows the impact the crisis has had on the demand for jet fuel, an important commodity for the product tanker shipping industry,” said BIMCO.

Outlook uncertain

BIMCO’s forecast of a slow and uneven economic recovery is due to a number of factors. These include continued low consumption despite massive stimulus measures put in place by many governments “because of uncertainty and the fear of unemployment among consumers.”

“Now, with lockdown measures eased and many countries reopening (locally, not internationally), governments are looking to end these very expensive measures, which means more people facing job losses and/or lower unemployment benefits. This is likely to lower consumption even further and cause more pain to a container industry already struggling with low volumes, though still making money,” said the report.

Moreover, the pandemic has made many countries and governments look inwards, and turn their backs on their dependencies, both for imports of key goods and exports to support their own economies. In China, for example, while production is increasing, its new export orders index continues to contract.

In recent years, China has already been trying to rebalance its economy so that it can rely more on domestic demand. Between 2006 and 2019, the share of GDP attributable to imports and exports fell from 64% to 32%.

“This trend is likely to continue in the wake of the pandemic as the Chinese government focuses on getting its own economy growing strongly again, rather than having to wait for the rest of the world to catch up,” said Sand.

Changing trade patterns—as a result of increased awareness of the vulnerability of supply chains, as well as economies’ interdependence—is something shipping will most probably have to adapt to in the coming years, said the report.

“The scale of this could be huge. The McKinsey Global Institute estimates that 16-26% of global trade could be relocated in the medium term. This would involve some combination of a return to domestic production, near-shoring and shifting to other offshore locations, with a new balance having to be found between just in time and just in case,” said Sand.

Photo by chuttersnap on Unsplash

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