China’s GDP - BIMCO Bulletin

China’s GDP

ECONOMY June 2019 Peter Sand: Why I ignore Chinas GDP By Peter Sand, Chief Shipping Analyst at BIMCO BIMCOs Chief Shipping Analyst, Peter Sand, pays little attention to headlines warning that the GDP of the worlds biggest economy is slowing. Here, he explains which key figures he does pay close attention to and what he considers a positive sign or an early warning for the shipping markets. It is fair to say that I pretty much ignore Chinas GDP. Of course, the development in the shipping industry is closely linked to the development in China but, to me, the gross domestic product (GDP) is the least relevant economic indicator of them all. After all, it is no secret that Chinas GDP is more or less predetermined. Peter Sand What my team and I do pay close attention to are imports and exports. We closely follow what kind of commodities are in high demand and entering China; we look at crude oil imports, iron ore, soybean and steel production. These are much better indicators of the real underlying economic activity in China than the GDP, which is all about history, not the future. A decline in new export orders is an early indicator of weaker shipping demand ahead, and that will get our attention The purchasing manager a window to future demand Right now, slowing growth ahead is the one thing that we can rely on It is much more relevant to look at the purchase managers indexes (PMI), in particular its sub-index of new export orders. Any indication of a drop in new export orders is highly relevant to the shipping industry, because it will hurt the market in the months ahead. A decline in new export orders is an early indicator of weaker shipping demand ahead, and that will get our attention. Looking at the general impact on the shipping market, the PMI is what I predominantly look out for. I closely follow both the official and unofficial figure. The official PMI is produced by the Chinese government and places more attention on the state-owned enterprises, whereas the unofficial PMI is produced by Markit and focuses more attention on the small and medium-size enterprises. Both PMI figures offer a window on what is coming a bit further down the line, because they are forward-looking estimates from the purchasing managers. While they are not solid statistics, they do give an important indication of the stimulus the Chinese government is putting into the economy and an idea of what kind of demand from the outside world is expected by small and medium-size enterprises. Peter Sand is Chief Shipping Analyst at BIMCO. He has worked for Statistics Denmark, compiling public accounts and doing international statistical work in relation to the European Union and the United Nations. He then joined D/S NORDEN and gained experience in the fields of executive assistance, caretaking of investors and the art of transforming financial data and shipping statistics into analyses, presentations and reports. Later, Sand worked with CSR and he left D/S NORDEN as Senior Analyst and member of the Corporate Social Responsibility Board and joined BIMCO in 2009. He holds an MSc in Economics from the University of Copenhagen. Therefore, these figures can serve as an early warning. They tell you whether Chinese businesses are expanding or declining. If you are a purchasing manager, you are asked whether you expect your business to grow or contract in the coming months. While a PMI figure of 50 means unchanged business, a sharp decline to below 50 is certainly a warning signal. The PMI for China normally stays around 51-52, but during the past six months we saw a significant decline to around 48, although the figure has recently risen slightly above 50 again. I believe we are seeing a nervous economic environment. Nobody has a crystal ball, but it is safe to say that, at this point, the economic compass is pointing in one direction, and that is towards slower economic growth on a global scale. China will feel that too, and it does not necessarily mean that the world is going into negative territory. While we may pretty much ignore Chinas fabricated GDP, having a planned economy is in many ways the best thing for a shipping industry that is lacking demand or serious growth anywhere else in the world. Right now, slowing growth ahead is the one thing that we can rely on. Photo (top): iStock / Nikada Connect with BIMCO Facebook Twitter Linkedin YouTube