Q1 2024
MACROECONOMICS
Global economic growth slowed in 2023, down to 3.1%, a level which the IMF expects will be matched this year.
A big underperformer relative to global economic growth in 2023 was the European Union, growing by only 0.4% in 2023. A big drag came from Germany - the bloc’s biggest economy - which continues to struggle with, amongst other things, high energy prices and low demand for its exports. This has led to a 0.3% contraction in Germany’s economy in 2023.
Over the full year, German exports fell by 1.4%, with a 3.2% drop in exports to other European Union countries being only partially offset by an increase of 0.8% in exports to the rest of the world.
Looking at drivers of growth across the EU, industrial production saw a year end boost in December 2023, up by 1.2%, following months of year-on-year declines. This was driven by a 9.4% increase in the production of capital goods.
Volume of retail sales fell in December 2023, by 0.5% from a year earlier.
Retail data clearly shows the impact of inflation however, despite volumes being down year-on-year, retail sales grew 2.7% in the same period. In fact, retail spending in the EU hit a record high in Q4 2023, even though it is not reflected in volumes.
Looking back further, retail sale volumes in Dec 2023 have fallen 4% since they reached a peak in November 2021. Despite this, retail value was 10.2% higher in December 2023 compared to November 2021.
When it comes to ocean freight shipping, demand is defined by how many goods need to be moved, with volume rather than value becoming all important.
In the US, a strong growth in container volumes in the second half of 2023 can be explained by two major factors.
Firstly, it seems inventories have stabilized following several years of volatility caused by the trade war with China and pandemic disruptions. With retailers and wholesalers no longer having large inventories to draw down, a more direct correlation has been re-established between consumer demand and container imports.
In addition, the share of consumer spending going on goods remains up by 2 percentage points from its pre-pandemic period in 2019, although it was down from the levels seen in 2021 and 2022.
Since 2019, total consumer spending has increased by 28.8%, with spending on goods up by 36.7%.
Data for January 2023 shows the first drop below 33% for the share spent on goods. This is still above pre-pandemic levels but suggests the positive impact on container freight spending due the higher spend on goods will not last forever.
Where the US is importing from is also shifting, with more imports from Mexico than China in 2023, the first time this has happened since 2002. However, an increasing share of US imports from Mexico likely originated in China, with the detour being made to avoid the US tariffs on Chinese goods.
China is increasingly finding alternatives to Europe and the US for its exports, building a network through its Belt and Road Initiative, which includes bilateral and regional free trade agreements.
In 2023 Chinese exports to South East Asia exceeded exports to both the US and Europe. Compared to 2019, exports to the US and the EU have grown by 19.5% and 33.8% respectively, while those to South East Asia are up by 71.9%.
Domestically, industrial production is one of the few bright points for China, growing by 7% in January and February combined. This is the fastest rate of growth in almost two years.
In contrast, private consumption remains muted, though consumer prices rose by 0.7% in February thanks to a Lunar New Year boost. This is the first time since September that prices have increased year-on-year, and the fastest growth in 11 months.
At the National People’s Congress, which began on 4 March, a growth target of 5% was announced for 2024 - the same target as in 2023, which ended in GDP growth of 5.2% according to the IMF.
