Chicago/Washington: A gauge of global cargo demand is signalling record-breaking economic growth even as US imports slow, suggesting that emerging powerhouses China and India are pulling enough weight to counterbalance a downturn in the world’s biggest economy.
The Baltic Exchange’s dry sea freight index, popular among economists because it is considered a good proxy for world growth and excludes volatile oil, has soared nearly 150% this year despite worries about the US economy.
In 2001, the year of the most recent US recession, the index lost nearly half of its value as demand ebbed. Now, China and India appear to be taking up the slack, buying up boatloads of food, coal and other raw materials to fuel their explosive growth, and the demand looks likely to last.
“For some time, the conventional wisdom has been that the global economy has two engines,” said Simon Rose, co-founder and chief executive officer of boutique investment bank Dahlman Rose.
“Europe is one engine, but the main engine has been the US. Now, we have a third engine in China and India.”
From the seaport in Long Beach, California, to the inland rail terminals in Kansas City and Chicago, shipments appear to be cooling as the US economy trudges through a housing downturn, credit contraction and steep oil prices.
At Long Beach, one of the world’s busiest ports, inbound shipments were down 3.7% in October, and year-to-date imports are little changed from 2006.
The latest reading on the Freight Transportation Services Index, compiled by the US department of transportation, was the lowest since January 2004. The index tracks data from trucking, rail, inland waterways, pipelines and air freight.
But the global picture looks decidedly different. The Baltic Exchange’s index, which hit an all-time high this month, reflects huge demand along major trade routes for coal, iron ore, cement and grains.
Exports from Long Beach were up a whopping 32.5% in October and 20% higher for the year to date, evidence of the stellar global demand as well as the weak dollar, which makes US goods more affordable abroad.
Freight rates to ship grains and soya beans from the US, Europe and South America have doubled and in some cases tripled from a year ago as demand soars.
In a clear sign of the rise of emerging markets, the International Monetary Fund had said earlier this year that for the first time China was the biggest contributor to global growth on a market exchange rate basis. Together, China, Russia and India will likely account for more than half of 2007 growth.
The question is, can emerging markets withstand a severe US economic downturn?
While some analysts question whether China’s hunger for raw materials will outlast the Olympics, Dahlman Rose’s CEO Rose said the next phase in the country’s growth—plus that of India, which he described as an overlooked “wild card”—will be driven by internal consumption as their people grow richer. REUTERS