13-01-2021 Vaccine rollout key to rebound in global economy, By Niklas Bengtsson and Adam Sharpe, Lloyd’s List
The total cost of the coronavirus pandemic in global GDP terms is about $6 trillion, according to the Centre for Economics and Business Research World Economic League Table 2021. Almost every country in the world has been negatively affected by the coronavirus backdrop in terms of GDP growth, with the exception of China, which was severely hit in the opening months of the past year. It rapidly recovered.
The CEBR notes that one of the major effects of the measures imposed last year has also been to redistribute economic momentum between countries, with Asia performing better than Europe and the United States, as reported by Lloyd’s List. It predicts that this redesign of the global economy will mean that China will overtake the US as the world’s leading economy by 2028, which is five years earlier than its previous forecast.
The rapid adoption of networking technology to facilitate home working helped to limit the impact of the coronavirus in many sectors of western economies in the past year, and for shipping also accelerated the path towards digitalisation. But strong production and a fast rollout of new vaccines to combat the spread of the virus should see major economies bounce back to pre-pandemic levels in 2021. Even then, China is expected to be the leader in terms of GDP growth in the coming 12 months, with in excess of 8% predicted by the CEBR.
This is expected to be good news for the dry bulk sector, which only declined by 1.9% in seaborne trade volumes in 2020. This was primarily due to China’s imports of raw materials for vast infrastructure projects, much of it being iron ore for steel production. Global steel production grew by 6.6% in November 2020.
Container volumes decreased in 2020 due to the impact of the lockdowns in China at the start of the year and the subsequent slowdown in consumer demand from western markets. That changed dramatically in the second half of the year, however, as the demand bounce-back exceeded expectations and retailers scrambled to replenish stocks. Asia-Europe rates are at record highs as new lockdowns and a shortage of equipment increase demand for container slots, while congestion at major ports grows.
China’s increasingly important role in the tanker market is also evident in figures released by ship brokerage Poten & Partners this week. It said China’s state-owned traders and refiners accounted for more than one fifth of dirty spot cargoes shipped on very large crude carriers in 2020. The backdrop has not impacted Chinese imports of energy products in the same way as it has in Europe, where new lockdowns will extend the period of muted demand. Total seaborne trade saw negative growth in 2020 and is estimated to have fallen by 3% versus 2019. The rebound in 2021 is forecast to be plus 5% and in 2022-2024 the forecast stands at a yearly average growth of 3%. While China’s economic growth is tracking ahead of schedule, the unrest seen in the United States in the past week when protesters stormed the Capitol highlights the extreme division that has crept into politics there and could hamper efforts to tackle the coronavirus pandemic.
The Eurasia Group think tank ranked political division in the United States as number one in its Top Risks of 2021 list, ahead of Long Covid, energy transition and US-China trade tensions. It points out that while Joe Biden’s victory was decisive in terms of both the electoral college system and popular vote, outgoing president Donald Trump increased the number of votes he received to 74m, up by 11m compared with 2016, showing that his base extends well beyond his most vocal supporters. With President Trump’s refusal to accept the outcome of the election, coupled with Republican gains in the House of Representatives and success in creating a decisively conservative Supreme Court, Eurasia argued that Mr Biden will start with the weakest political mandate since Jimmy Carter in 1976. The report was released on January 4, prior to the Capitol unrest and Democrats effectively winning control of the Senate and therefore full control of Congress alongside the majority they hold in the House, but much will depend on the pandemic response and economic recovery. Should the vaccine rollout proceed as hoped, with the pandemic subsiding and a strong economic recovery following, Mr Biden will almost certainly gain political capital and may be able to bridge the political divide. However, if the response fails and the economy stutters, the opposition to his presidency will grow.
Another issue that found some resolution at the end of 2020, although will undoubtedly be revisited and reassessed as the year goes on, was Brexit. A deal to cater for the post Brexit partnership was agreed between the European Union and the UK in late December and provisionally implemented on January 1. In many aspects, the deal is what the market thought an agreement would look like. In broad terms, it ensures continued tariff-free and quota-free trade in goods after January 1, although there is no word on services, which make up 80% of the UK economy and are the strong suit of London as a maritime centre. The deal should be not be seen as an end in itself but as the beginning of a drive to test new policies that could work to the benefit of both sides in promoting prosperity, while ensuring that the gains from prosperity are fairly shared out. Given that the EU economy is six times as large as the UK, the latter is probably the one gaining most on a deal. For shipping, it means that vessels sailing between Britain and the EU will continue to enjoy unrestricted access and the same treatment in each other’s ports after Brexit. The 1,246-page agreement also bans either side from erecting non-tariff barriers to shipping in future. It is too early to assess all the potential effects of the deal yet, but in short — it is most likely better for trade and shipping to have the deal, than not.
Perhaps of more consequence on a global level is that the EU also signed an agreement with China late in the past month. The EU-China investment, which has been some seven years in the making, removes barriers on foreign investments in China for some European industries as well as tackling forced technology transfer, non-transparent subsidies and state-owned enterprises. It also commits China to “make continued and sustained efforts” to ratify international conventions on banning forced labour. While it is a big win for the EU, particularly in light of the growing economic influence of China as outlined above, some analysts see it as a challenge to the incoming Biden administration, which wants to coordinate with Europe on how to handle China politically in future. EU officials have rejected criticism that they did not consult with Washington over the deal, arguing that the US secured its own trade and investment deal with China under President Trump, and that the EU is simply trying to ensure it has similar market access conditions, which would allow Brussels and Washington to then co-ordinate their policies towards China from a similar starting point.