“Following the previous period pre-holiday shopping rush in China, Baltic Dry Index didn’t have the necessary time and energy to look into the longer-term dynamics and trends. However, with the rush calming down, dry bulk is expected to have more time next week to ponder and assess all the above macro dynamics.”
Two years ago, the last trading week of September started with Hong Kong’s stock market plummeting, as an escalating liquidity crisis of the Chinese property developer Evergrande showed signs of spreading beyond the sector. The sell-off in Asia hit European stocks that morning and futures’ prices were suggesting markets in New York would open materially lower. Few hours later, the S&P 500 took a 2.9 percent dive, before closing with a daily drop of 1.7 percent and marking its worst day of trading since May 2021. In sync, commodity prices, including iron ore and copper, took a hit, as the potential collapse of one of China’s biggest property developers fuelled worries about potential declines in construction and demand for raw materials. With growing concerns for a "Minsky Moment" in China's property sector, the CBOE volatility index – the "fear gauge" – was hitting its multi-month maxima.
Twenty-four months later, a sudden major collapse of asset values – as expected by a "Minsky Moment" scenario – might not have happened, yet still China's property sector doesn’t seem to be fully recovered from the initial shock. In this context, growth in China is seen as slowing through this year and next after an initial rebound in early 2023 from reopening, according to the latest OECD's estimates. In contrast, GDP growth in the other major Asian emerging-market economies, India and Indonesia, is projected to remain relatively steady in 2023 and 2024 at circa 6 percent for India and 5 percent for Indonesia. The growth outlook in the rest of the G20 emergingmarket economies varies considerably, depending on countryspecific circumstances such as the challenges of high inflation in Argentina and Türkiye, and fluctuations in commodity prices. In general, excluding China, a modest upgrading in growth is seen among the G20 emerging-market economies over 2023-24, according to the Paris-based organisation.
In the US, the world's largest economy has so far proved surprisingly resilient to the steep rise in interest rates, with household spending supported by excess savings accumulated during the pandemic. As this effect fades, the lagging consequences of tighter financial conditions are expected to become increasingly visible. Calendar year GDP growth is projected to ease from 2.2 percent in 2023 to 1.3 percent in 2024, with growth through 2024 slowing to around 1 percent, well below potential. In the contrary, activity has already softened in the euro area and the United Kingdom, reflecting the negative bearing on incomes of the large energy price shock in 2022. GDP growth in the euro area in 2023 and 2024 is projected to be 0.6 percent and 1.1 percent respectively, with the corresponding numbers for the United Kingdom being 0.3 percent and 0.8 percent. Standing alone, Japan is the only advanced economy in the G20 without any increase in interest rates. Improving wage growth and strong service exports are expected to support GDP growth to 1.8 percent this year, before moving back closer to trend in 2024, at 1 percent.
The aforementioned dynamics are expected to be less supportive on the upward trend of the global economy. In particular, OECD expects global growth to dip both this year and next, remaining below trend throughout the period. In advanced economies, growth will continue to be held back by the macroeconomic policy tightening needed to tame inflation. Structural strains in the Chinese economy are expected to result in a slowdown of growth in 2023-24. The full effects of the policy tightening in advanced economies are now seen as coming through with a longer lag than previously thought. As a result, annual global GDP growth is now projected to decelerate from 3 percent this year to 2.7 percent in 2024. The cooling of demand pressures along with a sharper slowdown in China is expected to help ease headline and core inflation in most G20 countries, broadly in line with OECD’s earlier expectations.
In terms of international trade, the world economy has now experienced more than a decade in which trading volumes have barely kept pace with output growth. In the latest OECD’s Global Trade report, the G20 merchandise trade saw a contraction in Q2 2023, with both exports and imports falling by 3.1 percent and 2.0 percent, respectively. This decline is attributed to subdued global demand and decreasing commodity prices, particularly in the energy sector.
Following the previous period pre-holiday shopping rush in China, Baltic Dry Index didn’t have the necessary time and energy to look into the longer-term dynamics and trends. However, with the rush calming down, dry bulk is expected to have more time next week to ponder and assess all the above macro dynamics.
Data source: Doric