Caution counselled as uncertainty rules
Economists are expected to provide forecasts for months and years ahead
Our industry expects economists to provide forecasts for the months and years ahead, prognosticating about demand and supply as well as financial returns. We spout optimism and pessimism with equanimity, but often with a lag.
To be honest, most economists get it wrong and as I have mentioned in the past, they tend to jump on the bandwagon not wishing to stand out. Still we see new sources with predictions based on the past are hard to justify.
We entered 2011 on a high note with most carriers and terminals flush with cash either via operations, IPOs or asset sales. The global economy looked to have stabilised and bar a few countries suffering financial turmoil in Europe, growth looked to be a certainty. What could possibly go wrong?
North Africa and the Middle East is what went wrong. Despite previous strong support from the West, “stable” rulers have begun to fall like dominos. Generally not an issue except that some are producers of oil and natural gas and that is beginning to impact the economies of the US and Europe as the price of oil increases due to the uncertainty of the outcome of regime change and who the next set of rulers will be.
A number of studies have been done to measure the impact of oil prices on national GDP. None is exact, whether it be the complicated econometric modeling or more simpler calculations, but the bottom line is that there is a direct link between the two. As oil prices increase sharply, GDP drops, hitting input prices, demand, inflation and consumer confidence. This in turn hits trade.
The turmoil may be political, but at the end of the day it becomes an economic issue. During the Clinton (Bill) period, the mantra was “It’s the economy, Stupid”. And that in a nutshell it is.
There is no way to provide a reasonably accurate forecast in the current climate as we do not know if the oil price rises are short or long term nor who is in charge, and worst of all will the revolution spread. Caution is the word.
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