Global economy on leading edge of recession
Global trade flows are flat or falling in all major regions as the world economy flirts with recession for the first time since 2008/09 – which will cut growth in oil consumption, especially for mid-distillates such as diesel.
Freight volumes handled through major ports such as Long Beach and Singapore as well as air cargo handled through hubs such as Hong Kong, Memphis, London and Frankfurt are either flat or down compared with 2018.
Hong Kong International Airport, the largest air freight hub in the world, has seen volumes fall more than 5% in the three months from March to May compared with a year earlier.
London’s Heathrow reports cargo down 4.5% between March and May compared with a year earlier, the worst performance since 2013.
Germany’s Frankfurt has seen volumes fall almost 3%, while at Tennessee’s Memphis International volumes were down almost 1%, in both cases year-on-year between February and April.
Air freight is used only for the most valuable and time-sensitive merchandise but is generally a good leading indicator for the rest of the cargo sector and the broader economy.
Seaborne container volumes through California’s Long Beach, the largest terminal for trans-Pacific trade, fell by 10% in March-May compared with a year earlier, the worst performance since 2015/16.
Container volumes through Singapore were up 1% between March and May compared with a year earlier, but growth has slowed from 16% in the first quarter of 2018.
Forward-looking freight indicators suggest the slowdown is likely to continue for the rest of the year and could turn into an outright recession.
Global manufacturers report new export orders have been falling for nine months and are now declining at the fastest rate since 2015/16, according to the JPMorgan global purchasing managers’ index.
South Korea’s KOSPI-100 equity index, a good proxy for global trade growth given its heavy exposure to exports, was down almost 15% at the end of May compared with a year earlier.
The World Trade Organization’s trade outlook indicator has fallen to its lowest since 2010, signalling a continued deceleration in trade volume growth (“Trade weakness to extend into second quarter”, WTO, May 20).
In March, the OECD’s composite leading indicator of economic activity in the advanced economies and major emerging markets fell to its lowest level since the recession of 2008/09.
Since 1970, whenever the OECD indicator has fallen this low, the U.S. economy has always entered a recession, and taken the other advanced industrial economies with it.
The global economy might still avoid an outright recession. In 2015/16, the slump in oil and other commodity prices pushed the economy close to recession, only for it to re-accelerate in 2017/18.
Or the Federal Reserve and other central banks could cut interest rates to improve confidence and boost spending on durable goods. In 1998, prompt interest rate cuts kept the expansion going for another two years.
U.S. interest rate traders are already pricing in at least one quarter-point reduction in the Fed funds rate by the end of September and possibly a second, with rates expected to be 75 basis points lower than today by January 2020.
At the moment, however, the global economy appears to be on the leading edge of a recession, and it seems more likely than not the downturn will deepen in the next six months unless action is taken to turn it around.
Source: Reuters (Editing by Dale Hudson)