8 minute read
At The Prow
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Reshoring: fact or fiction
For most of the 21st century, manufacturers have discussed China plus one strategies - a determination to not be 100% beholden to the People’s Republic for their supply chains. Latterly the term reshoring has also become common parlance too, a keenness to bring manufacturing nearer to home, to be less reliant on frayed supply chains, something that has become more paramount as the world seems to be splitting at the seams between democracies and autocracies. Moreover, China’s dogged zerocovid strategy has infuriated and frustrated foreign manufacturers spectacularly.
Results from a flash survey carried by the EU Chamber of Commerce in China in early May when hundreds of millions of Chinese were in lockdown showed this frustration all too clearly. 23% of respondents said they are now considering shifting current or planned investments out of China to other markets—more than double the number that were considering doing so at the beginning of 2022, and the highest proportion in a decade. 78% of respondents said they feel that China is a less attractive investment destination as a result of its more stringent covid restrictions.
Likewise, a May survey carried by the German Chamber of Commerce in China carried similar sentiment. Nearly one-third (28%) of foreign employees of the surveyed companies plan to leave China due to covid-related measures, with 10% planning to do so even before their current employment contract ends.
Here’s the thing however for those that have reported on China for a long time. Once a decade or so the world debates this topic, and the media has a brief introspection about the future of globalisation.
Despite the threat of leaving en masse once all the maths are done global manufacturers will, I am sure, sit on their heels. The fact is all the chips are in China’s hands - whether it’s port infrastructure, factory set-ups, raw material availability or financing, there is no other place that can offer the cheap products we have all come to rely on in the 21st century. Then there’s the NIMBY factor, which people underplay - does the west want the pollution and scarred landscapes that a wholesale industrial shift would bring? We’ve left it way too late if we wanted to avoid being beholden to China. ●
Sam Chambers Editor Maritime ceo
Swings and roundabouts
There’s plenty of plusses and minuses for analysts studying America’s economy today
Many analysts, and the current political administration, were somewhat non-plussed at the news of -0.4% in the first quarter, or -1.4% on an annualised basis – America’s weakest quarter since the early days of the covid pandemic. So what’s going on, after a strong end to 2021 with rising employment numbers leading to heightened spending? The US Commerce Department has stated that it believes the slowdown was caused by a sharp rise in imports and a concomitant drop in a combination of stats including private inventory investment, exports, federal government spending, and state and local government spending. Consumer spending, the largest component of the US economy, grew 0.7% in the first quarter of 2022. This is not a stellar performance given positive employment numbers and life getting back to something like normal in key consumption areas such as California and the east coast. Employers have added an average of 600,000 new jobs a month over the last six months and America’s unemployment rate dropped to 3.6% in March, close to the pre-pandemic low.
This weak first quarter looks almost definitely to worsen through the second and third quarters of the year at least. The war in Ukraine has obviously triggered oil and gas price rises that are still working their way through the economy and China’s new coronavirus lockdowns will worsen already persistent supply chain problems. While demand for American fuels is rising, especially as European nations look to break their commodities relationship with Russia, this may not be enough to offset global price rises for American industry. It is also the case that American business will find themselves stretched in terms of components and consumer goods due to the logjams at Chinese ports. Additionally, this could also hit American corporate results – big China manufacturers like Apple, Tesla, etc are almost guaranteed to see slower sales for a while due to supply chain interruptions.
The other factor that may make a rebound harder to achieve is that the lower than expected numbers in the first quarter will mean that the Federal Reserve is likely to raise interest rates to tackle rising inflation. Already Fed rate rises in March meant that inflation hit a 40-year high of 7.9%. Central bank analysts expect another rise of 0.5 percentage points in the pipeline, twice March’s rise.
Finally export figures. Exports fell 5.9% and imports rose 17.7%. This was clearly due to stockpiling in the final quarters of 2021 to avoid any domestic supply chain disruptions (lack of truck drivers, etc). China lockdowns and likely medium to long term knock-on effects of port disruptions will see this drop extend through 2022. ●
US: The Cost of Living Rise in Inflation Terms – October 2021-March 2022
Month Inflation rate (%) October 2021 6.1
November 2021 6.5
December 2021 6.9
January 2022 February 2022 March 2022 7.4
7.8
8.3
Source: US Government Data, Federal Reserve
The fallout from Ukraine
Europe has acted fast in the days following Russia’s invasion. The effect on the continent’s economy is likely to blunt growth
The Russian invasion of Ukraine is having adverse effects on the European Union (EU), particularly Germany. Inflation, already jumping, will soar further as the continent pays higher energy bills, weaning itself off Russian energy.
Still, as the worst of the Covid-19 pandemic appears to be receding in western Europe the EU is cautiously optimistic about renewed economic growth as the continent emerges into a new normal status post-Covid-19. The European Commission’s Winter 2022 Economic Forecast issued in early February projects that, following a notable expansion by 5.3% in 2021, the EU economy will grow by 4% in 2022 and 2.8% in 2023. Growth in the Eurozone is also expected at 4% in 2022, moderating to 2.7% in 2023. The EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all member states are projected to have passed this milestone by the end of 2022.
A major issue, which the commission accepts, will be inflation, particularly fuel inflation. Again, according to the commission’s projections, overall inflation in the Eurozone is forecast to increase from 2.6% in 2021 to 3.5% in 2022, before declining to 1.7% in 2023.
It is also worth noting that we are now seeing a clearer picture of the drastic effects on trade between the post-Brexit UK and the remaining EU bloc. UK exports of goods to the EU fell by £20bn ($23bn) over the first year of Brexit, according to the Office for National Statistics (ONS). Also, according to the ONS, UK goods imported from the EU were down almost 17%, or about £45bn, compared with 2018. In comparison, imports from the rest of the world increased by almost 13%, or about £28bn.
The situation in Ukraine aside, how have the major EU economies been performing? It seems France is actually recovering faster than Germany – France’s economy recovered by 0.7% at the end of 2021 while Germany stumbled by 0.7%./ Sweden and Spain also saw some recovery. The International Monetary Fund (IMF), in its latest economic forecast, said France would expand by 3.5% by the end of 2022, with 3.8% growth in Germany and Italy.
Politically it should be noted that while Germany has now gone through its political transition from Angela Merkel of the Christian Democratic Party to Olaf Scholz of the Social Democratic Party, France is facing a presidential election this year with incumbent Emmanuel Macron aiming to win re-election in April. Macron’s finance minister, Bruno Le Maire, has talked of a “re-industrialisation” of France with an emphasis on renewed manufacturing and greater levels of investment – Renault e-vehicles, everyday technology brands, etc. Certainly, France’s apparently strong post-Covid bounce back should play in Macron’s favour though French unemployment remains higher than US, German or UK levels while government debt is high. This spring the French people will decide what direction they wish to go in economically. ●
EU: New job starts by top 5 sectors, 2021
Sector % of over all employment Accommodation & Food Service 12
Art, Entertainment, Recreation Administrative & Support Services Agriculture, forestry & fishing Construction 7
6
6
6
Other 63
Total
Source: European Commission 100
