Global News Pandemic effect drives disconnect in global trade-GDP demand indicator

The International Monetary Fund’s (IMF's) downgrade of its global GDP forecast for 2023 isn’t the harbinger of slower container growth it once was after two pandemic-driven years showed the traditional trade-GDP ratio no longer holds.

A shift in spending away from services and more toward goods in the US and Europe led to a consumption of goods well above the pre-pandemic trend, and ongoing trade and geopolitical risks have extended the disconnect between trade growth and economic growth.

Peter Sand, chief analyst at rate benchmarking platform Xeneta, said the trade-to-GDP ratio “went out the window” last year.

“The market turned negative for container shipping in dramatic fashion in the final four months of [2022] while GDP grew in fairly fine fashion,” Sand said in an interview this week, adding that 2023 will continue to see falling container volume and increasing GDP growth.

The IMF’s World Economic Outlook Update has projected global GDP growth of 2.9 percent in 2023, down 0.2 percentage points from its last prediction in October, before rising to 3.1 percent in 2024. But that is still below the historical economic growth average of 3.8 percent.

However, a forecast by S&P Global, parent company of the Journal of Commerce, predicts global trade activity will decline 1.9 percent year over year through the first quarter of 2023 and drop another 1.4 percent in the second quarter before recovering later in the year to reach 0.6 percent year-over-year growth overall in 2023.

Xeneta also expects both container trade and GDP to be positive by 2024, but Sand noted the general trend in GDP around the world was for services to grow faster and for shipping to see physically smaller goods, with a continued trend of reducing China sourcing.

“We see the [trade-to-GDP] multiplier staying around 1, a weakening trend,” Sand said. “The multiplier never really was 3, and it's been two decades since it was 2, but going forward it will be a tall order to keep it above 1.” Dramatic change in logistics Denmark-based forwarder DSV noted in its annual report published this month that the slowdown in the global economy and a post-COVID shift in consumer spending away from goods and toward services resulted in global trade volumes contracting more than the general economy in 2022. That will continue to impact DSV’s markets going into 2023.

“Our industry has changed dramatically in recent years,” the forwarder wrote. “New trends and market dynamics are affecting transport and logistics globally and locally. We must understand these dynamics.”

DSV noted in its report that global trade growth has been on a level with GDP growth and believes that correlation will continue in the long term, although with different growth rates between regions.

Hapag-Lloyd spokesperson Tim Seifert said in the past, container transport volume was slightly higher than global GDP growth with a multiplier just above 1. But in 2020 and 2021, volume growth was higher than GDP growth, driven by the pandemic and high consumption, before market volumes began to fall through 2022.

“In 2023, market volume is also expected to be slightly lower than global GDP due to the normalization in the market, muted consumption, and destocking,” Seifert told the Journal of Commerce, adding that from 2024 onward, the market volume growth will once again track GDP growth levels.

Thierry Vanelslander, a professor in the Department of Transport and Regional Economics at the University of Antwerp, said the past two years “have been very particular, with all kinds of disruptions and policy changes playing into each other, such as COVID lockdowns, port closures, the Suez Canal blockage, and geopolitics with China, Russia, and the US.

“That means for one country or region internal trade goes up, while shipping volumes globally go down,” he added.

However, Vanelslander does not believe the trade-to-GDP ratio is an accurate predictor of global demand.

“GDP has been less relevant as an explanatory variable for shipping volumes for about two decades, since Western economies have moved more into being service economies, with services not implying commodity flows,” he said, adding that other indicators, such as industrial production, would be more relevant. Global economy ‘turns the corner’ Whichever indicators are used, Drewry believes the world economy turned a corner in the fourth quarter of last year, with the container shipping analyst painting a surprisingly optimistic picture of 2023 in its latest market update.

“Fears of a gloomier 2023 are dissipating with recent data suggesting that inflation in most of the developed world has started trending downwards and the increase in interest rates will be far lower than we had expected a few months back,” Drewry noted.

“Oxford Economics — our data source for macroeconomic metrics — recently forecast world GDP will grow by 1.3 percent in 2023, a figure that has remained unchanged for the third consecutive month,” it added. “Even though the forecast is weaker than the estimated 3 percent growth for 2022, the expectation is that quarter-on-quarter world growth reached the trough in the fourth quarter of 2022 with the growth forecast to start improving in 2023. This indicates that the worst is behind us.”

This sunny take on the global economy was not evident in Maersk’s 2022 annual report released this week, which spelled out wide-ranging changes and disruption to the logistics landscape as the world moves past the pandemic.

“Fundamental drivers of the logistics industry are becoming more challenging and the industry itself faces accelerating paradigm shifts driven by supply chain fragmentation, geopolitical instability, and economic headwinds, straining established supply chains set-ups and logistics solutions,” the carrier noted in the report.

Maersk is assuming global economic growth will be about 1.5 percent in 2023 with major economies going into recession. The carrier expects consumer spending growth will slow further and predicts global ocean container market growth in 2023 will decline between 2.5 percent and 0.5 percent year over year.

The carrier warned geopolitical relationships will remain tense going forward, with some supply chains shaped more by political choice than by economics, with the increasing impact of climate change also a factor.

“The totality of uncertainty facing customers’ supply chains and logistics providers is significant and greater than any single risk factor would indicate by itself,” Maersk noted. Executives brace for recession Also taking a glass-half-empty view of global trade were logistics executives surveyed in the 2023 Agility Emerging Markets Logistics Index. Seventy percent of those surveyed were bracing for a recession this year amid higher costs, slowing demand, ongoing supply chain disruption from China’s battle to contain COVID-19, Russia’s war in Ukraine, and the impact of climate change.

“Carriers and shippers are feeling the effects of higher energy prices, tight labor markets, and broader inflation even though freight rates have fallen and ports have cleared cargo backlogs,” Agility Vice Chairman Tarek Sultan said this week in his analysis of the poll.

“Three years after the start of the pandemic, there is still a lot of volatility in supply chains,” he added. “Now there’s fresh uncertainty as consumers and businesses pull back on spending and hiring.”