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By John Kemp
LONDON, June 12 (Reuters) - Global trade flows are flat orfalling in all major regions as the world economy flirts withrecession for the first time since 2008/09 - which will cutgrowth in oil consumption, especially for mid-distillates suchas diesel.
Freight volumes handled through major ports such as LongBeach and Singapore as well as air cargo handled through hubssuch as Hong Kong, Memphis, London and Frankfurt are either flator down compared with 2018.
Hong Kong International Airport, the largest air freight hubin the world, has seen volumes fall more than 5% in the threemonths from March to May compared with a year earlier.
Londons Heathrow reports cargo down 4.5% between March andMay compared with a year earlier, the worst performance since2013 (
Germanys Frankfurt has seen volumes fall almost 3%, whileat Tennessees Memphis International volumes were down almost1%, in both cases year-on-year between February and April.
Air freight is used only for the most valuable andtime-sensitive merchandise but is generally a good leadingindicator for the rest of the cargo sector and the broadereconomy.
Seaborne container volumes through Californias Long Beach,the largest terminal for trans-Pacific trade, fell by 10% inMarch-May compared with a year earlier, the worst performancesince 2015/16.
Container volumes through Singapore were up 1% between Marchand May compared with a year earlier, but growth has slowed from16% in the first quarter of 2018.
TROUBLE AHEAD
Forward-looking freight indicators suggest the slowdown islikely to continue for the rest of the year and could turn intoan outright recession.
Global manufacturers report new export orders have beenfalling for nine months and are now declining at the fastestrate since 2015/16, according to the JPMorgan global purchasingmanagers index.
South Koreas KOSPI-100 equity index, a good proxy forglobal trade growth given its heavy exposure to exports, wasdown almost 15% at the end of May compared with a year earlier.
The World Trade Organizations trade outlook indicator hasfallen to its lowest since 2010, signalling a continueddeceleration in trade volume growth (Trade weakness to extendinto second quarter, WTO, May 20).
In March, the OECDs composite leading indicator of economicactivity in the advanced economies and major emerging marketsfell to its lowest level since the recession of 2008/09.
Since 1970, whenever the OECD indicator has fallen this low,the U.S. economy has always entered a recession, and taken theother advanced industrial economies with it.
The global economy might still avoid an outright recession.In 2015/16, the slump in oil and other commodity prices pushedthe economy close to recession, only for it to re-accelerate in2017/18.
Or the Federal Reserve and other central banks could cutinterest rates to improve confidence and boost spending ondurable goods. In 1998, prompt interest rate cuts kept theexpansion going for another two years.
U.S. interest rate traders are already pricing in at leastone quarter-point reduction in the Fed funds rate by the end ofSeptember and possibly a second, with rates expected to be 75basis points lower than today by January 2020.
At the moment, however, the global economy appears to be onthe leading edge of a recession, and it seems more likely thannot the downturn will deepen in the next six months unlessaction is taken to turn it around.
Related columns:
- U.S. consumer confidence critical to the economic outlook(Reuters, May 31)
- Markets expect interest rate cuts as economic outlookworsens (Reuters, May 17)
- Global air freight is falling in sign of economic strain(Reuters, May 10)
- Fed rate cut likely if U.S. manufacturing continues toslow (Reuters, May 2)
- Global economy close to stalling as trade falls (Reuters,April 26)
(Editing by Dale Hudson) ((john.kemp@thomsonreuters.com and on twitter @JKempEnergy))
