COMMENT: The sharpest decline in economic activity in Q2 worldwide was followed by spectacular growth in Q3, but Q4 looks like a bust, writes Ben Hackett.
The thrill of a rollercoaster ride was experienced in the Summer months between June and September as lockdowns came to an end and economic activity blossomed. The joy of it all resulted in a second wave (and in the USA a strengthened first wave) of the pandemic. Oops! And now Europe has entered a second lockdown, with the USA likely to follow soon. Asia is less impacted but has stringent rules on travel, keeping many borders shut.
As we near the end of a difficult year in terms of health, trade and politics, we have witnessed record-breaking statistics that have been virtually unpredictable. Trade hit all-time highs this summer and online shopping did the same. Whether similar patterns will continue in the coming months will be influenced to a large extent by the coronavirus pandemic and whether it will be brought under control by the arrival of expected vaccines next year.
We are witnessing a worldwide retreat from free trade spurred on by the disruptive USA trade policy. It will be years before we see a shift back toward freer trade. In its latest World Economic Outlook report, the International Monetary Fund projected the global economy will shrink by 4.4 percent in 2020 (an upgrade versus the previous outlook) followed by growth of 5.2 percent in 2021 (a downgrade).
Consumers in the USA and Europe dug deep into their savings to increase retail sales, primarily in non-textile and clothing sectors. This led to a mini boom in shipping demand, particularly for containerships.
Financial results have been positive. The fact that over 90 per cent of the global container capacity is controlled by three alliances that have managed their capacity rather than fight for market share has been a factor. The idle containership fleet accounts for 2.2 per cent of the total available capacity, down from 3.4 percent last month.
As the rollercoaster comes over the pinnacle and drops down the steep decline so will the global economy outside of Asia and shipping along with it. The new lockdowns and post Trump policies in the USA will almost certainly guarantee a decline in economic activity. Hold on tight.
