Macro Economics: Demand supported by EU and US while China is creating uncertainty
All eyes are on China in recent months as most other non-Chinese economic indicators have been dwarfed by the government’s actions and markets’ reactions. It is all of the things that we don’t know about the Chinese economy that is worrying, not the fact that the economy is in a transition phase which inevitably will drive down GDP growth and change import and export patterns.
The Federal Reserve Bank (Fed) is still scouting for the right moment to increase interest rates. If it wasn’t for the most recent uncertainty about China, which is felt in the US too, it would probably have happened by now.
While the official GDP growth for the second quarter hit bull’s eye exactly at 7%, which was the government’s official target, factors pointed out already in 2007 to be more accurate for China’s economic development by the incumbent Premier Li Keqiang tell a different story. The three factors he mentioned were the cargo volume on the province’s railways, electricity consumption and loans disbursed by banks. Using these factors, the economy seems to only be growing by up to 3% if it grows at all. The lack of trustworthy data means that the uncertainty is severe.
Our base case for China is that the authorities will still manage to pull off a soft landing. Regardless of where the “real” GDP growth is at, China is in a transition phase that brings around slower yet safer and more sustainable growth. According to the International Monetary Fund (IMF) this requires that the market is given a more decisive role in the economy. At the end of the day, we all need to know more about these changes in order to understand them and so we don’t become anxious about them. The call in the financial markets is for the Chinese authorities simply to communicate what they intend to do before they do it and explain what they aim at accomplishing by the moves.
At some point in time, we will stop talking about a recovery and focus more on the lack of investments that has brought down the “potential future growth level”….
Container Shipping: Low demand on high-volume trades weighs down as supply rises
The container shipping market may find comfort in the fact that global volumes were up by 1.1% in the first six months of 2015. Following a disastrous first quarter, all three months of the second quarter posted year-on-year increases. Behind the headline, though, the story of US East Coast imports was the only positive one on the vital East–West trading lanes. First-half growth of …
2015 will see a new record inflow of newbuilt tonnage. BIMCO forecasts close to 1.6 million TEU will be delivered by the end of 2015. This marks the highest inflow of new capacity ever. As the record settles, it will be done by less than 200 ships. The trend is strong, as 436 ships were needed to reach 1.502 million TEU in 2008.
In our last report we signalled that the rise in charter rates for small to medium-sized container ships could see new orders surface if rates remained high. In spite of rates coming off somewhat, we have seen a flood of orders since May. January to April saw only 13 orders for …
The lack of European demand is of concern. In the short term, this is because container shipping is a low-margin business and industry profitability requires sustainable freight rates on high-volume trades. In the long term, half of all new ships are bound for a future on the Asia to Europe trading lane, cascading the present work horses onto other trading lanes. A successful cascading of ships left over on higher-volume trades should not increase supply of capacity beyond requirement on the secondary trades where it is about to be deployed.