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Headlong Rush to Growth

Our models suggest that North Europe will have had an annual growth rate of nearly two per cent for imports while exports grow nearly seven per cent in 2017, with most of the growth in the first half of the year. They also suggest that the first half of 2018 will grow at a faster pace, up 4.4 per cent and 3.7 per cent respectively compared to volumes in the same period last year. This is virtually the same as we projected last month.

We can now safely say that the EU is out of the recessionary quagmire that it was in for far too many years and that austerity measures are playing a far less significant role. As a result GDP growth in virtually all the countries is positive and relatively strong. This is supported by economic indicators such as the Purchasing Managers’ Index (PMI) which suggest that growth in the first few months of 2018 is going to be the strongest in more than twelve years. Much of this is driven by the services sector, but overall business optimism is high, including in the manufacturing sector. Demand for goods remains high, resulting in pricing increases that will certainly cheer up a European Central bank that has been concerned about earlier downward pressures on inflation.

As the lower unemployment figures and job security encourage consumer confidence, the savings ratio has dropped across the board encouraging increased spending which in turn increases consumption, including of imported goods. As the European economies expand so do those of their Asian suppliers and purchaser; not all is due to the exhortations of President Trump.

The conundrum is knowing how long this growth spurt will continue. Our view is that the growth will slow down in the second half of the year, still leaving the full year with higher growth than 2017, certainly for imports. Exports is a different matter for reasons not connected to economic indicators. China has banned the imports of waste material such as paper and plastics as of March. This will seriously impact container exports from North Europe, but then again, these commodities are heavy in nature and pay very little in terms of freight rates. Maybe a silver lining, but not for ports.

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