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Deutsche Bank’s Dire Warning On Global Trade: “The Currency War Is Futile”
Deutsche Bank’s Dire Warning On Global Trade: “The Currency War Is Futile”
“It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”
That’s from WTO chief economist Robert Koopman, and it’s a quote we’ve used on a number of occasions. Koopman is referring to the fact that for several years in a row, the rate of growth in global trade has lagged GDP growth. That’s a problem for two reasons: 1) GDP growth is hardly robust as it is, and 2) before the recent downturn, the last time trade growth underperformed the rate of economic expansion was two decades ago.
As WSJ noted last autumn, trade growth has averaged just 3% per year. That’s half of the 1983-2008 average.
“It’s fairly obvious that we reached peak trade in 2007,” Scott Miller, trade expert at the Center for Strategic and International Studies, a Washington, D.C., think tank told the Journal.
Since then, the evidence has continued to pile up that global trade has flatlined. Freight volume in the US fell for the first time in three years in November, while monumental declines for Class 8 truck sales vividly demonstrate the extent to which commerce is simply grinding to a halt across the US economy. As for global trade, well, the Baltic Dry speaks for itself.
“It is worse than in 2008. The oil price [is low] and freight rates are lower. The external conditions are much worse,” Maersk CEO Nils Andersen said, just last month. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter alone.
In this environment the “answer” has been competitive devaluation – i.e. a currency war.
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World Trade Collapses Most Since Crisis
World Trade Collapses Most Since Crisis
That is, have lackluster growth and trade become structural and endemic rather than transient and cyclical?
Those are the burning questions that keep central bankers (not to mention sellside economists) up at night and they are front and center at the G-20 in Shanghai.
Warning signs abound. The Baltic Dry is in a veritable free fall. Germany’s manufacturing juggernaut is showing signs of faltering. The BRICS have ceased to be a reliable driver of global growth. US freight volumes are falling for the first time in years. And the list goes on.
“We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” WTO chief economist Robert Koopman said last autumn. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.”
As we noted earlier this month, to the extent Maersk is a bellwether, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.
On Thursday we got the latest evidence that the wheels are falling off. According to new data from the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor, global trade (defined as the value of goods that crossed international borders) plunged nearly 14% in 2015.
That’s the first contraction since 2009.
“The new data released on Thursday represent the first snapshot of global trade for 2015,” FT notes. “But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected.”
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What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst
What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst
As The Telegraph reports, Brazil is planning to fight the Zika virus by zapping millions of male mosquitoes with gamma rays to sterilise them and stop the spread of the virus linked to thousands of birth defects.
Called an irradiator, the device has been used to control fruit flies on the Portuguese island of Madeira. The International Atomic Energy Agency said on Monday it will pay to ship the device to Juazeiro, in the northeastern state of Bahia, as soon as the Brazilian government issues an import permit.“It’s a birth control method, the equivalent of family planning for humans,” said Kostas Bourtzis, a molecular biologist with the IAEA’s insect pest control laboratory.
Brazil is scrambling to eradicate the Aedes mosquito that has caused an epidemic of dengue and more recently an outbreak of Zika, a virus associated with an alarming surge in cases of babies born with abnormally small heads.
The new epidemic threatens to scare visitors away from the Rio 2016 Olympic Games in August. A Brazilian non-profit organisation called Moscamed will breed up to 12 million male mosquitoes a week and then sterilise them with the cobalt-60 irradiator, produced by Canadian company MDS Nordion, said Dr Bourtzis.
After an initial programme in a dozen towns near Juazeiro, the Brazilian government would have to decide on scaling up the sterile mosquito production with more funding for use in cities, where they would be released from the air, possibly from drones, said Dr Bourtzis.
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“It’s Worse Than 2008”: CEO Of World’s Largest Shipping Company Delivers Dire Assessment Of Global Economy
“It’s Worse Than 2008”: CEO Of World’s Largest Shipping Company Delivers Dire Assessment Of Global Economy
Earlier today, we highlighted the rather abysmal results reported by Maersk, the world’s largest shipping company.
To the extent the conglomerate is a bellwether for global growth and trade, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.
“The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels,” the company said, in its annual report.
Just how bad have things gotten amid the global deflationary supply glut you ask?
Worse than 2008 according to CEO Nils Andersen who last November warned that “the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.” Here’s what Andersen told FT:
“It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse but we are better prepared.”
As FT goes on to note, “capacity in the container shipping industry increased 8 per cent in 2015” despite the fact that Maersk only sees global trade growing at between 1% and 3% in 2016.
Imports to Brazil, Europe, Russia, and Africa are all falling, Andersen warned. The company’s business, Andersen says, is suffering from a “massive deterioration.” That, you can bet, will likely lead to a “massive deterioration” in Maersk’s shares, which took a substantial hit on Wednesday in the wake of the quarterly and annual results.
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