The fiscal crisis has landed
Seagate Wuxi China Factory Tour Photo: Robert Scoble
The global economy is entering a difficult period, the outcome of which we cannot guess at this stage.
The economic indicators do not look good. Without going into detail, we can surmise that output of goods is in a phase of decline in parts of Europe and Asia, particularly China. According to one of the global indices, the JP Morgan Global Manufacturing Purchasing Managers’ Index (PMI), global manufacturing has slowed to its lowest level since July 2009, when the recovery from the 2008-09 recession began.
China is in the same boat as the Western Hemisphere. The PMI produced by the China Federation of Logistics and Purchasing fell for the fourth consecutive month in July, reading just above 50 points. Below 50 indicates a recession. The July reading was the lowest in 29 months. Hand in hand with this, new export orders fell slightly, the fourth month of slowdown.
European austerity packages, deemed a leading indicator of slowing trade growth in earlier months, are being revisited with further cuts. Italy is the first, surely Spain, Portugal, probably France will follow with new measures. Add to that the fiscal irresponsibility in the US and we can begin to understand the lack of consumer and industrial confidence. The S&P downgrading of the US from AAA to AA+ was the final nail in the coffin that resulted in the extreme volatility of the stock markets.
Charter rates for containerships, dry and liquid bulk ships alike fell as demand dropped away. Freight rates in all sectors are under downward pressure and container carriers are mostly reporting financial losses for the first half of 2011.
What this means for ports is that what currently looks like a relatively healthy volume throughput will turn squishy as we go into the second half of the year. US and European container volume growth will remain positive but much weaker. Bulk volumes are also dropping away.
Are we entering a new recession, much like in the 1930s? That is not clear at this stage but the risk is growing. Let us hope that the fiscal crisis is brought under control and that confidence returns.
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