- Coronavirus, trade tensions could derail global growth in 2020.
- The US and China have signed a “Phase One” of a trade agreement, US– Mexico – Canada deal has passed into law in the US, with only Canada left to approve it.
- Global growth projections pushed for 2020 up to 3.3%, from just 2.9% in 2019 – the projections before the coronavirus outbreak.
- Prolonged closure periods could also affect the “Phase One” agreement between the US and China.
- Low Chinese demand has directly affected dry bulk and tanker trades and container shipping is affected as the manufacturing sector is shut.
- For shipping, the fact that tariffs have become a go-to weapon for the current US administration creates a risk of slowing tonne-mile demand growth.
- Unless alternative trading partners can be found,, the more countries impose tariffs, the volumes may be lost completely.
According to Peter Sand, Chief Shipping Analyst at BIMCO, global growth could be derailed in 2020 by coronavirus outbreak and trade tensions that seem to be easing for the time being, says an article published in Safety4Sea.
Phase One of trade agreement
- The US and China have signed “Phase One” of a trade agreement to avoid further escalation of the almost two-year trade war.
- The new US– Mexico – Canada deal has passed into law in the US, with only Canada left to approve it.
- A hard Brexit was avoided.
“These developments have helped push global growth projections for 2020 up to 3.3%, from just 2.9% in 2019 – the lowest figure since the global financial crisis.”
Trade war impact in 2019
Growth in 2019 was heavily affected by the trade war. This was added as a reason for the percentage point drop in the International Monetary Fund’s (IMF’s) projection for 2018. The latest report showed a drop from 3.9% in its January 2019 World Economic Outlook to the 2.9%.
BIMCO expects an adjustment downwards in the next update as these projections were published before the coronavirus (COVID-19) outbreak.
Coronavirus Outbreak period
Mr. Sand said that the longer the outbreak remains uncontained, the larger the expected drop in growth and the knock on effects will be felt by industries across the world.
Factory closure
“The coronavirus threatens not only the Chinese economy, but potentially that of the entire world. With factories and offices closed for prolonged periods, it could also affect the “Phase One” agreement between the US and China. China could find itself unable to increase its imports from the US by the amounts detailed in the deal.”
Low Chinese demand
Low Chinese demand has directly affected dry bulk and tanker trades. Given the importance of Chinese imports, disruptions to these segments will affect the entire market.
Container shipping is affected as the prolonged shutdown in the country’s manufacturing sector limits its ability to meet demand.
Further escalation in trade tensions
The possibility remains of a further escalation in trade tensions. The majority of tariffs between the US and China remain in place. Still in the past, the relationships have turned sour quickly.
US-China trade war
BIMCO believes it is highly unlikely that a deeper trade deal addressing the underlying problems the US has with China, will be negotiated seriously before the US presidential election in November.
Battle between the US and the EU
In addition to the US-China trade war, there are mounting concerns about a potential battle between the US and the EU.
Tariffs a weapon
France digital tax
- France has recently avoided having tariffs slapped on some of its exports after postponing plans for a digital tax.
- This would primarily hit the large American tech companies.
Retaliatory tariffs
Moreover, Canada is also considering a similar tax and, despite being US allies, could all face retaliatory tariffs.
Lost volumes
For shipping, the fact that tariffs have become a go-to weapon for the current US administration creates a risk of slowing tonne-mile demand growth.
- Unless alternative trading partners can be found, which is increasingly hard, the more countries impose tariffs, the volumes may be lost completely.
- This would slow exports of the affected goods and potentially any imports used in their production process.
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Source: Safety4Sea
