Slowing global trade…
Global trade could shrink as much as 2.5% this year, according to Maersk’s gloomy outlook. The container shipping giant reported a larger than expected decline in shipping volumes in the fourth quarter, ending a 16-quarter streak of earnings growth. And more headwinds are coming for the shipping industry, including weak consumer demand and a wave of new vessels coming online, which together could push freight spot rates down even more.
But Maersk itself has other options. As reshoring and friendshoring efforts gather pace, the company’s bet on positioning as an integrated logistics provider—as opposed to just a shipping company—could pay off. Companies’ efforts to rely less on China’s manufacturing base could see intermediate assembly steps moved elsewhere, which could raise demand for intermodal transport.
…or solid industrial strength?
If Maersk is one economic bellwether, the industrial sector is another. And on that front, things don’t look too bleak.
Electrical equipment maker Eaton expects 9% organic growth this year; Automatic systems supplier Emerson projects net sales growth of 10%; Grainger, which supplies big manufacturers with factory floor basics, saw sales grow 17% last year and expects to see 11% growth this year. Meanwhile, companies like HVAC leader Lennox and machinery makers Caterpillar and Deere are boosting their capital spending.
These recent indicators from industrial majors may be cause for some cautious economic optimism. They may also lend some credence to the idea that instead of one big demand-destroying recession, the global economy may instead see a series of rolling recessions: numerous slumps rippling in succession across the housing, manufacturing, and the service sectors, but no single hard landing.
Pakistan is desperate for a bailout
Pakistan continues to teeter on the edge of sovereign default. Its foreign exchange reserves have now dwindled to 2.9 billion USD as of February 3, according to the central bank. The International Monetary Fund just wrapped up a 10-day trip to the country for negotiations on a bailout; while that visit saw progress made, no definitive agreement has been reached.
In addition to floods, power outages, and high commodity prices, Pakistan faces the additional challenge of political turmoil that has strained relations with the IMF. And even a deal with the IMF would only release 1.1 billion worth of funds—a tiny fraction of the country’s 275 billion USD in national debt. Plus China, to which Pakistan owes roughly 30% of its foreign debt, has not offered any help with rolling over its loan. Other distressed emerging markets are surely eyeing Pakistan closely for clues on what a potential debt default wave will look like, and of course how China, a newly important global lender, will respond.
Pakistan’s liquid foreign exchange reserves, billion USD
State Bank of Pakistan