6 minute read
Europe’s shipbuilding industry competes
COMMENT
BILLJAMIESON | Executive Editor of The Scotsman
European Commission in a fantasy world
The latest economic forecast from Brussels sees growth where others see only stagnation.
“The recovery is broadening. GDP growth in the EU, which has turned positive in the second quarter of last year, is increasingly driven by domestic demand.”
So begins the latest official economic assessment and forecast from Marco Buti, the European Commission Directorate-General for Economic and Financial Affairs.
In case the opening two sentences of the 165-page Winter 2014 Forecast were not sufficiently Panglossian, Mr Buti was only warming to his theme.
“This year,” he continues, “domestic consumption and investment are set to expand further, reducing the dependency of the recovery on the external sector. Growth has also returned in many of the vulnerable Member States, and growth differentials across EU Member States are expected to narrow.”
It is hard to conceive an appraisal of the state of the EU economy at such variance with the real world. But this is what passes for truth within the Commission headquarters in Brussels: a state of affairs beyond Orwellian.
Here are the facts. The eurozone’s feeble recovery sputtered to a halt in the second quarter of this year. The continent’s economy is stagnating. There were some bright spots - Spanish growth quickened from 0.4 per cent in the first three months of the year to 0.6 per cent. And both Dutch and Portuguese GDP, which had contracted in the first quarter, are now above these lows.
But the euro area is being held back by poor performances in its three biggest economies. GDP fell in Germany, the biggest, and Italy, the third largest, by 0.2 per cent; France, the second largest economy, reports a GDP standstill.
Investment bank Citigroup has cut its German growth forecasts once again, to 1.3 per cent for 2014 and 1.6 per cent for 2015, from 1.6 per cent and 2.0 per cent previously. “Prospects for exports and export-sensitive investment,” it notes, “have deteriorated in particular. Germany is more vulnerable to external risks than other large eurozone countries.”
The lacklustre recovery has barely dented unemployment across the eurozone. Now there is growing frustration over the timid response so far by the European Central Bank. ‘Berlin fiddles while Rome burns’ would be a fair description. There is clamour for more effective action – specifically measures to counter low inflation by adopting a programme of quantitative easing. Hopefully this will come by the time you read this.
As The Economist warned, “low inflation and negligible growth are a potentially lethal combination for countries weighed down by debt, as many are in the euro area. Moreover, the problem arises not just from high levels of public debt but also from excessive debt owed by households and firms. Even if inflation remains merely low it presents a problem for borrowers whose incomes are rising much more slowly, if at all, than they expected when they took out their loans. And if prices start generally to fall, this raises the real burden of debt.”
Pressing for flexibility
So evident has the deterioration become – despite that blue-sky depiction of the European Commission – that EU leaders have agreed to hold an emergency summit on promoting growth and jobs on October 7, highlighting their concerns over the fragile economic recovery.
The statement announcing the summit baldy stated that “the recovery, particularly in the euro area, is weak, inflation exceptionally low and unemployment unacceptably high.”
Italy has been pressing for greater flexibility in the application of strict EU rules on budget deficits, alongside countries such as France, arguing that an excessive focus on German-style austerity has hampered Europe’s recovery.
Consumer sentiment in Italy slumped more than expected in August, the third consecutive drop, taking it back below its long-run average. Said Italian Prime Minister Matteo Renzi, “Europe must be more than the (bond) spread, rules and economic budgets.” A separate summit for the 18 eurozone members would also be held in the autumn.
Expectations of radical central bank action were also boosted by remarks by a bank board member that the ECB was ready to adjust monetary policy stance further and that it “will provide additional liquidity to banks on the condition that they increase credit directed to the real economy.”
All this has gone down like a plate of cold spaghetti in Berlin. German government spokesmen were moved to deny reports that chancellor Angela Merkel had telephoned ECB governor Mario Draghi to ‘demand answers’ regarding comments he made suggesting an easier fiscal stance, including perhaps a public investment programme, to boost the euro area economy. So has the ECB changed its course on austerity? And if she didn’t ‘demand answers’, what did she demand? Berlin declined further comment.
Whatever the European Commission might say, EU leaders have clearly given up on those empty Commission platitudes about “recent improvements point to a path towards gradual normalisation.”… However, it conceded, “there is still some sailing to do before we reach harbour.” n
Sailing to do? That’s putting it mildly.
USA
While Europe’s ferry and freighter shipbuilders are in intensive care, its cruise shipbuilding industry and marine equipment suppliers enjoy the virtual global domination. Alan Lam reports.
EUROPE’S SHIPBUILDING INDUSTRY COMPETES ON TECHNICAL MERITS
Long before the recession, Europe’s 300 or so shipyards already faced stiff competition from their peers in the Far East. The recent economic downturn took a heavy toll; today there are only vestiges of the industry scattered in a handful of shipyards in Germany, Poland, Croatia and Italy. Order book total fell from its height of over 81,000,000 gross tonnes in 2007 to about 15,000,000 two years later, and it continues to fall.
The financial crisis brought the German Kommanditgesellschaft finance system to its knees, which badly hurt Germany’s domestic yards that specialised in venture-built, smaller container ships.
Today, most freighter ship construction activities are concentrated in South Korea, China and Japan. Shipyards in these countries have also suffered, as demand has not recovered to the pre-crisis level. Because of their puffier financial cushions, a few Chinese shipyards have been willing to quote ‘below the material cost’ prices in order to win contracts, to the further detriments of the already beleaguered European yards.
However, it can be argued that things on the whole are not as bad as they appear to be. Like many other industries today, shipbuilding depends heavily on outsourcing and equipment suppliers. This is where Europe continues to thrive. Engine and component makers like MAN Diesel and Wärtsilä, with their cutting edge technologies, are leading players on the global freighter shipbuilding stage. Far Eastern builders continue to depend on European suppliers. Most shipyards today only build about 25 per cent of a ship; the remaining 75 per cent comes from suppliers.
Moreover, Europe also has the edge on design and management. There are teams of European experts working in shipyards all over the Far East. Hundreds of European specialists and managers, for example, are working on Samsung Shipyard’s prestigious Shell Prelude projects. The UK-based Evoqua Water Technologies is one of the European companies with a major contract for the project’s ballast water treatment.
While this does not address the deteriorated situation in Europe’s freighter shipbuilding yards, the industry’s salvation may be in its cruise shipbuilding sector.
Cruise shipbuilding supremacy
Europe’s four major passenger shipbuilders – Fincantieri, Meyer Werft, STX France and Meyer Turku (formerly STX Finland) – have
