The world economy, and thereby trade, is heading for a squall. Last week the World Trade Organization released its estimate that global trade grew by 3.0 percent in 2018, well below the 3.9 percent projected last September. 2019 is forecast to achieve only 2.6 percent. Weaker economic growth is the main culprit, combined with Brexit and US-inspired trade wars. The Organisation for Economic Cooperation and Development is equally concerned (see the chart in the Global Economic Overview section for more details).
German manufacturing contracted at its fastest rate since the 2012 Euro crisis and the Purchasing Managers’ Index there dropped to 44.1 in March, down from 47.6. Italy is in a recession and China’s economy has slowed dramatically, which impacts the rest of Asia. The United States remains robust but increasingly the main economic indicators such as industrial production, manufacturing output and investment are all pointing to a slowdown in gross domestic product growth below last year’s level of 2.9 percent to a projected 2.4 percent, according to IHS/Markit. The IHS/Markit Purchasing Managers’ Index for new export orders has been falling for six months in a row, the largest drop since 2016.
The economic slowdown this time is not linked to financial institutions but rather to the manufacturing sector’s reduced output as trading partners are buying less. The US consumer, while more cautious, has not stopped spending. The inventory-to-sales ratio is, however, on the rise. On the positive side, we do not project a recession for 2019, just a slowdown in growth.
This is mirrored in our models for US consumer goods imports, with a 2.3 percent increase in containerized imports for 2019, down from 2.7 percent in our previous projection. Part of this can be attributed to the heavy front-loading of imports ahead of expected tariff increases in 2018.
The liner shipping companies have already announced reductions in capacity and lower vessel speeds to avoid reductions in freight income, but to date this has not worked.