December 4, 2012 Leave a comment
Three economic scenarios and what they mean for liner shipping in 2013.
Containerisation International magazine is exploring the possible economic scenarios for 2013 and what these imply for the industry. These scenarios are being developed with the help of James Frew, Container Analyst at Maritime Strategies International. We would like your help in assessing the likelihood of each scenario detailed below. There will be a survey about the scenarios posted on this blog, and on various LinkedIn freight and shipping forums.
Scenario 1; Going Over the Fiscal Cliff.
US – Half a dozen or so tax exemptions expire at the end of 2012 along with a similar number of scheduled spending cuts kicking in at the start of 2013. The aggregate effect is $7 trillion of tax increases and spending cuts over the next decade start in 2013,which economists say the change is too fast and will throw the US economy into recession. The main battleground is the expiry of the temporary Bush tax cuts at the end 2012, and who this will affect. Republicans want no tax increases, while Democrats want tax increases at least for those earning more than $250,000/year. In Scenario 1 Obama and the Democrats fail to reach a compromise with the Republicans, who control the Senate. The non-partisan Congressional Budget Office estimates the inflation adjusted affect will be 0.5% drop in GDP in 2013. The Tax Policy Centre at Moody’s Analytics goes even further (see amazing graphic) predicting a 3.54% drop in GDP. This would be a repeat of 2009 (see chart from Google’s free public data website). MSI estimates housing starts revert to 5-600k/year. Federal Reserve will increase QE to partially offset the economic weakness.
Europe – Greece exits the Euro. Greek losses impact across Europe. Other weak Euro countries (Portugal, Spain, Italy) increase austerity packages and their total GDP falls by 5%. The rest of the Eurozone falls by 0.5%. France slips into recession. Merkel loses election to former finance minister Peer Steinbrueck.
China – The new leaders embark on a mini-stimulus programme emphasising infrastructure and investment, and GDP growth remains over 6.5%. New leaders launch anti-corruption drive.
Scenario 2; More of the Same
US – Democrats and Republicans agree to an extension of tax cuts and increase legal limit of deficit. Scheduled spending cuts are balanced out by agreements on other spending. Failure to agree longer term solution hits investor confidence. Unemployment begins to fall and housing starts increase to 1 million/year. GDP growth 2.4%/year.
Europe – Greece and other weak Eurozone nations implement further austerity measures, and stay in recession. Germany’s GDP marginal GDP growth exceeds 1%, while rest of Eurozone is 0.4%.
China – GDP Growth hits 8.4% with more emphasis on investment and infrastructure.
Scenario 3; Turning the Corner
US – Compromise reached on tax rises and spending cuts. US extends fiscal stimulus and there is a release of pent up consumer and investor demand. GDP growth hits 3.8% and housing starts reach 1.4 million/year.
Europe – European leaders agree on some form of debt mutualisation, which solves the Eurozone crisis. Greece is granted limited debt relief. Greece, Spain and Italy push through reforms of their labour markets, freeing up goods and services from restrictive practices. France implements tax reform. The ECB loosens policy. Eurozone GDP grows by 2.5%.
China – A stronger global economy allows the government to continue with policy of switching from investment and export led growth toward encouraging domestic consumption. GDP growth hits 8.5% and imports rise.
The scenarios are in development, so feel free if you have any questions or comments. Hopefully we will get a good response and be able to paint a picture of what the industry thinks 2013 will look like.