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Editorial: Dark Clouds on the Horizon

Chennai, 9 Nov 2022:

Danish shipping giant Maersk, widely seen as a barometer for global trade, cut its forecasts for container demand this year and predicted that the global economy could enter a recession. Maersk now expects global container demand to fall by between 2% and 4% this year and believes freight rates have peaked.

With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon. This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand, Maersk Chief Executive Soren Skou warned.

“Freight rates are coming down — that will detract from inflation — but we still have very high energy costs and we also have a very, very strong labor market in most countries,” Skou said.

Skou also predicted that “It’s quite likely that we either are or will soon be in a recession, certainly in Europe but potentially also in the US.”

Manufacturing activity in the euro-area sank to the lowest level since the first Covid-19 lockdowns in 2020.Record inflation and a weakening global economy erode demand for goods, with new orders falling at a faster rate.

Spain was the worst hit, followed closely by Germany, which is among the most exposed to Russia’s cut in energy supplies.

The data “are now clearly signaling that the manufacturing economy is in a recession,” warned Joe Hayes, senior economist at S&P Global Market Intelligence.

Maersk, one of the world’s biggest shipping companies assessing the global economy, says container demand will fall as much as 4% this year. For those hoping this will rapidly cool inflation, it had more bad news.

Alongside its demand downgrade, Maersk said the price pressures that have come to dominate the post-pandemic economy — while easing a bit — are going to stick around for a while as elevated energy prices and labor shortages prop up costs across supply chains.

The outlook from Maersk, which moves millions of containers around the world every year, is a fresh warning for central banks that their inflation battles may be far from over.

It comes hours before the Federal Reserve delivered a fourth jumbo interest-rate increase and reiterate that it remains steadfast in its task. The European Central Bank hiked last week at a second straight meeting, and the Bank of England is due to lift its benchmark on Thursday.

In its earnings statement, Maersk said there are signs that bottlenecks are easing, but the squeeze from inflation that’s affecting earnings will remain throughout this quarter.

That was echoed in a monthly manufacturing survey from S&P Global published Wednesday, which said that inflation “remains stubbornly elevated despite continued evidence that supply-chain pressures are receding.”

“Businesses experienced pressure on the cost base due to inflation, which is expected to continue for a longer period,” Maersk said.

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