Growth Slowing, and We Are Talking Ourselves into a Recession

According to an article in the Telegraph, recent data from the OECD is showing that global trade all but collapsed in the second quarter, dropping from 10.1 percent growth in the first quarter to a miserly 1.1 percent in the second. Holland’s World Trade Monitor said global commerce contracted by 2.2 percent in June from the month before. Although global trade volumes have not collapsed like in the latter part of 2008, they are back to levels seen in December of 2010.

Meanwhile, Bloomberg reports that the container-shipping industry is contending with the longest stretch of near-zero rates in the last 50 years on the Asia-to-Europe route, as a capacity glut combines with the slowest growth in trade since 2009. And it’s not just the major economies that are slowing, either. Commodity currencies such as the Canadian dollar, Aussie dollar and Kiwi dollar are making life very hard for exporters in those countries. Canada has just reported a worse-than-expected contraction by 0.4 percent for the second quarter and the Australian authorities are signaling they may reverse their rate rises from earlier in the year as the economy slows.

Although the very latest PMI numbers show manufacturing is still just barely in growth, calls are now being made for further quantitative easing in the US and UK, while the Europeans cannot agree among themselves what is required, Germany has finally dropped demands for rate rises and southern European states are desperate for anything that will stimulate growth as their economies continue to contract.

Metal Prices – Up or Down?

Where does this leave metals? It’s a good question, and as we have said before, much depends on China in particular and Asia in general. For the time being, metals demand remains robust, copper buying has returned, aluminum prices have dropped to the point where some Chinese capacity is probably loss-making, prompting speculation the country could become an importer of primary metal again, and iron ore has touched recent highs on strong ongoing demand.

While metals prices have come off this year, it has more to do with investors’ fright at wider debt worries and fears for global growth than fundamentals. The foregoing reports of downturns in global growth appear to support the investors’ rush for the door, but from the current levels, continued Asian demand may well make the next direction higher, at least over the next six months. That would be unfortunate for Western manufacturers struggling with falling demand and rising input costs.

–Stuart Burns