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Home News Economic spring a mirage in the Covid desert

Economic spring a mirage in the Covid desert

Reports of the apparent gradual lifting of restrictions in Spain and Italy and some evidence of a reduction in the number of hospital deaths in the United Kingdom have given rise to speculation about how the global economy might get moving again.

Notwithstanding the fears of a “second wave” of infections seeing the recovery slide into relapse, there is a sense that these projections are less a Covid Spring and more a false dawn.

Shipbroker Braemar points to the reawakening of industry in the Chinese economic powerhouse, and that factories in East Asia are now back at pre-viral production levels.

However, Braemar also reports that IHS Markit’s US Manufacturing Purchasing Managers Index (PMI) fell to 36.9 in April this year from 48.5 a month earlier, below market expectations of 38.

“The reading pointed to the sharpest contraction in factory activity in 11 years amid the cancellation or postponement of both domestic and foreign orders,” explained Braemar.

In Europe the expectations are hardly any better, with the IHS Markit Eurozone Services PMI nosediving to 11.7 in April from 26.4 in March, “Well below the market consensus of 23.8”, writes Jonathan Roach at Braemar.

He went on to say “The flash manufacturing PMI for the Eurozone fell to 33.6 in April, down from 44.5 in March. Figures pointed to the biggest drop in factory activity since February of 2009. The consumer confidence indicator in the Euro Area tumbled 11.1 points from a month earlier to -22.7 in April 2020, the lowest since March 2009.”

What is more, the indications are that Europe and the United States will follow a similar pattern to China, but those demand economies will be some weeks behind China. If that is the case Europe and the US are in for more heavy economic weather.

“Profits earned by China’s industrial firms slipped by 36.7% year-on-year to CNY781.45 billion (US$110.42 billion) in [the period from] January-March 2020, as the country continued to face the severe impact of the Covid-19.”

That was even as Beijing eased restrictions and businesses resumed production. “The latest reading followed a 38.3% slump in January-February, which was the steepest fall since at least 2010.”

In the face of such dire economic realities and with industry having such low expectations in both the major consumer regions of the world, it is hard to understand what it is that the Chinese economy is restarting for.

Source Braemar.

That said the knock-on effect for the second-hand market was limited, but only because it was already stagnant, with “relatively little to report in concluded sales”.

The green shoots evident in some consumer economies may not be enough, concedes Roach. “At least in the very short-term it is difficult to foresee this being sufficient to cause a dramatic rebound in the container market. So we expect that a number of ships under discussion will soon be transacted at significant discounts to their values only a few months ago.”

It is difficult to maintain the rebirth metaphor when the shipbreaking industry, essentially the required euthanasia of ships, has been artificially prevented by the Covid-19 crisis, even though Braemar reports that some steel cutting is now taking place on the Indian subcontinent.

However, Braemar concedes that the industry is still “some way away from a full re-opening of the demolition markets”. What is more the early price indications are at a level of US$100 per LDT, that remains some way off pre-lockdown levels.

Although the patient, in this case the economy, may be slow to recover the certainty is that it will be reborn. And those green shoots will be more than a mirage.

Source Braemar.

Nick Savvides
Managing Editor





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