In its January World Economic Outlook Update, the IMF noted that global economic growth is expected to improve in 2014-15, “largely on account of recovery in the advanced economies”. Performance in the developed world at last seems to be gaining some traction, and much attention is on economic growth in the traditional key Atlantic economies.
The IMF anticipates that economic growth in the advanced economies will accelerate from 1.3% last year to 2.2% in 2014 and 2.3% in 2015. Growth in the developing economies of Asia, meanwhile, is projected to increase much more moderately, remaining between 6.5% and 7.0%. Whilst overall economic growth is certainly very interesting, in the shipping industry it is often more helpful to look at industrial production (measuring the industrial output of economies, indicating their needs for raw materials but excluding ‘services’ output which has little direct impact on seaborne demand).
What do the latest industrial production (IP) statistics show? Well, the performance of the Atlantic economies has certainly improved (see inset graph). Our output-weighted measure of the rate of year-on-year IP growth in the Atlantic economies surpassed 2% in each of September, October and November having averaged just 0.6% in the period between October 2011 and August 2013. If things continue as the IMF projects then that could improve further.
Check The Scale
However, there’s still a long way to go until that matches the growth rate in the Pacific economies for which our weighted measure averaged 5.7% from July to November. And unlike comparisons of GDP where the top 14 Atlantic economies still contribute more than 50% of the world total, the top 5 Pacific economies account for 20% more of the world’s IP than their Atlantic counterparts, registering 31% of the total. The faster IP growth rate in the East is highly significant.
All Eyes East
As the main graph shows, in historical terms that’s not even the whole story. A long-run comparison of IP growth in the Atlantic and Pacific economies shows just how much the drivers of shipping demand have been in Asia. The graph shows an index of IP basis 1993=100. Since then, limited by the recession the Atlantic economies have increased their IP by 30%. However at the same time the Pacific economies have seen IP increase by 150%. Since November 2008 the figures are 5% and 37%. This clearly has had a key effect on shipping. For example, all of the growth in iron ore trade since 2000 has come from Asian imports, and around 90% of growth in coal trade. Over 60% of growth in container trade has been from Asian exports.
So, whilst improved economic health in the Atlantic is long-awaited good news, the industrial production statistics remind us that we need to look East as well as West. The Pacific by some distance remains the key driver of growth in seaborne demand. Have a nice day.