Economic Outlook Truly ‘Uncertain’

By Simon West

SAME-DAY BREAKBULK EUROPE COVERAGE: Amid runaway inflation, rising interest rates and a devastating conflict in Ukraine, many analysts are predicting a global economic downturn sooner rather than later.

Throw into the mix China’s Covid policies, port and border congestions and the ongoing capacity crunch, and it is fair to say breakbulk’s and project cargo’s rocky times roll into new and troubling directions.

Breakbulk Europe 2022 kicked off its event program Wednesday with its Global Economic Outlook session, led by Johan-Paul Verschuure, a senior port and transport economist and project director at consultancy Rebel Group.

“People like to call economic situations ‘uncertain’, but this time it really is uncertain,” Verschuure said during the “fireside chat” with Carly Fields, news editor at Breakbulk Events & Media.


Global Reaction

The threat of downturn has prompted global banks to act.

In a bid to dampen consumer borrowing and rein in 40-year high inflation rates, the U.S. Federal Reserve in early May raised its benchmark interest rate by half a percentage point to a range of 0.75 to 1 percent.

The Bank of England followed suit, also hiking interest rates to 1 percent, the highest for more than a decade. The European Central Bank is also expected to bump up rates in the third quarter.

Verschuure argued that high inflation could impact breakbulk in a number of ways. “If we have long inflation, then what does this mean for breakbulk and the terminals? And then you have to think about projects. What we see is more uncertainty for some projects to go ahead, as prices were fixed one or two years ago.

“But, the most obvious impact (of inflation) is on the consumer side, which is not typically the first driver of demand for the breakbulk sector. What we are seeing now will only feed into the breakbulk sector much later.”


Renewables Resilient

Certain industries though are likely to fair better. For Verschuure, renewables are likely to withstand a downturn, with the crisis in Ukraine accelerating the shift to energy sources such as wind and solar as a way to reduce dependence on fossil fuels.

“I do not think wind parks will lose momentum over this – they will go ahead. More luxury products such as cars, more discretionary products will definitely take a first hit,” Verschuure said.

“There are some structural dynamics that will not be affected by lower GDP, especially with governments having to step up their ambitions on energy independency,” he said.

On the supply side though, challenges persist. Energy transition, high commodity prices and the lack of capacity is at risk of derailing green energy development, while at the same time pushing prices even higher. Another feature of the global uncertainty is re-routing of cargoes and the shift in sourcing, although Verschuure said so far, the impact had been limited.

“The conflict is a big concern, driving up energy prices, but actually the volumes that have been affected on a global trade perspective are actually relatively limited. Russia is obviously a massive country on the map, but in terms of the size of its economy, and the size of trade other than oil, it is easy to overcome.”

Meanwhile, the specter of Covid hangs over the global community. China’s zero-Covid strategy has intensified global supply chain problems, reducing capacities and pushing up prices even further. While authorities have announced an easing of restrictions starting in June, recovery to normal levels could take months.

“It is good news that they are slowing starting to open up,” the economist said. “But they are really in a tricky situation. This is going to take one or two years before it settles down.”