Second quarter: no let up yet

This follows on from the havoc caused to manufacturing outlets and supply chains in China after being impacted by the coronavirus.

While recovery is underway in China, with manufacturers steadily ramping up production and truck driver availability climbing, attention now turns to the world’s major demand centres where COVID-19 is now strongly exerting its negative influence and will, as diverse analysts point out, be responsible for a substantial fall in demand.

Denmark-based Sea Intelligence is sticking to its earlier estimate of a 10% decline in global container shipments equating to 17 million TEU transported by shipping lines and 80 million TEU handled in the world’s container ports.

The analyst has also recently estimated a potential fall in US output in the second quarter of this year that could be as high as 24% due to a combination of the coronavirus and an oil price war. Clearly, such a scenario will impact demand and lead to a reduction in freight volumes.

The Economist Intelligence Unit (EIU) also makes a poignant statement when it says: “The coronavirus epidemic represents a severe threat to global growth. Prior to the outbreak we expected global real GDP growth to be lacklustre this year, at 2.3% (at market exchange rates).

“The emergence of the epidemic in China is a game changer, and we now expect global growth of 1% this year—the slowest rate since the global financial crisis of 2008. The negative effect on growth will come via both demand and supply channels. On the one hand, quarantine measures, illness, and negative consumer and business sentiment will suppress demand. At the same time, the closure of some factories and disruption to supply chains will create supply bottlenecks.”

Specifically, in terms of regions the EIU also makes the following interesting observations with regard to Europe and Asia:

Europe: “We expect economic uncertainty to persist until at least June, dampening business sentiment, household consumption of non-essential goods, and travel and tourism activity.”

Asia: “The coronavirus outbreak will affect every economy in Asia in 2020.” It particularly cites the negative impact of a downturn in tourism with a downturn in Chinese tourism at the forefront of this. Equally, it notes as a major negative disruption to industrial supply chains with the economies with the greatest exposure to this being Hong Kong, Taiwan, South Korea, the Philippines and Thailand.

The simple fact is that according to a significant body of informed opinion the worst may not be behind us but ahead – and certainly in the second quarter of the year. After that we can hope for a ‘bounce back’ but nothing is assured yet.