Does GDP matter for shipping?

Pierre Aury has some advice for executives looking too closely at the health of national economies.

My January column discussed AI, global warming, the geopolitical situation and the possibility of a financial crisis as likely or not to shape 2024. It triggered some feedback along the lines of a recession being more likely to have an impact on shipping in 2024. On purpose, we did not mention the possibility of such a recession. 

We are not saying that there won’t be a recession, in fact, according to several economists there is a good chance that a recession will hit us in 2024. But should there be a recession around the corner, such a recession might only have a marginal impact on shipping because the world GDP components that are relevant to shipping –  primary and secondary sectors – are continuously decreasing in relative terms. The secondary sector was about 32% of world GDP back in 1990 and is about 27% today. Unfortunately, capesize vessels don’t deliver pizzas! 

The second reason we did not mention a recession as likely or not to shape the shipping market in 2024 is because of the way a recession is defined. In fact, there is no official definition of what a recession is, but there is a general consensus that it refers to a period of decline in economic activity, a period of negative growth as it is often referred to in a world that is hardwired on the long side. Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country’s GDP. Seems simple enough? Well, actually it is not because the final GDP figure for any period of time is only known when all the data from all the economic actors are available for that period. In complex developed economies the process of collecting and adding together all these data to produce a final GDP number can typically take up to three years from the end of the period. So how come then that the US bureau of economic analysis has just released the Q4 2023 US GDP number? Well, the number released is the result of a poll among enterprises, banks, and government entities which are deemed, according to a model, to be representative of the US economy. In fact for those curious enough to read the fine print there is a get-out-of-jail wording accompanying the release of all these numbers: “The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency.”

US Q1 2023 GDP numbers originally published as being +1.3% (annualised) have now been revised to 2%, that’s a 54% increase. So if actual GDP numbers are likely to change over time after the events what about GDP forecasts? Well in fact they are normally quite good with one problem though which is that when something big happens they either fail to predict it or grossly underestimate its magnitude. These forecasts are accurate when there is nothing happening and inaccurate when something is happening…as useful as a chocolate fireguard.

The final reason why we did not mention the possibility of a recession in our previous column is because looking at GDP in shipping is a bit like practicing archeology: a ton of steel is sold and therefore makes its way into the GDP of a given period had its freight component agreed upon many months or sometimes even a year before.

Sure, GDP is important over the longer term but short-term congestion and bad weather will move the market when an elusive GDP forecast will not.