July 29 (Reuters) – While most investors are transfixed by
trying to anticipate the next jurisdiction-hopping, tax-driven
merger, there are small but growing signs that global growth may
be headed for a slowdown.
Perhaps the most eye-catching figure is the collapse in the
Baltic Dry Index (BDI), a market measure of demand for shipping
capacity, which is down about 65 percent so far this year. With
90 percent of everything traded around the world traveling by
sea, the fall in shipping prices, while probably overstating
matters, is a sign worth paying attention to. The fall in the
BDI is at least in part driven by lots of new shipping capacity
coming online, but there are other indicators that trade
momentum is slowing and could be taking global growth with it.
The volume of global trade fell outright in May, the most
recent month measured, according to data from the Netherlands
Bureau of Economic Policy Analysis, and momentum in global trade
has been in negative territory for much of the year.
That makes the International Monetary Fund’s decision last
week to cut its global growth forecast for this year to 3.4
percent, from 3.7 percent in April, easier to understand, though
the underlying economic mechanisms are far from simple.
In part this is a pure story about the U.S., whose economy
actually shrank in the first quarter at a brisk 2.9 percent
annual clip. The IMF has downgraded U.S. growth expectations to
1.7 percent for the full year, but this is far from being a sure
thing. Though U.S. manufacturing and consumer confidence are
strong (the latter buttressed in part by peppy asset markets),
housing has emerged as a weak spot, with mortgages reportedly
hard to obtain and new home building slumping. Remember too that
the U.S. economic expansion is now in its 61st month, against an
average expansion length since 1854 of just 39 months.