2022 was supposed to be the year of post-pandemic and post-lockdown re-openings, but – as ING’s global head of macro, Carsten Brzeski, says – it became the year of war, inflation, energy and commodity price crises, drought and floods.
“The list of unprecedented crises gets longer by the year,” he said in an end-of-year economic research note. As a result, ING expects to see “several different shades of recession in 2023”. Those shades include a “rather textbook-style recession in the US” with the central bank hiking rates until the real estate and labour markets start to weaken, and inflation comes down.
Then in Asia, the warning reads “expect a recession that feels but doesn’t read like a recession in China with Covid restrictions, a deflating real estate market and weakening global demand, bringing down economic activity to almost unprecedented low levels”.
The eurozone, meanwhile, can “look forward” to an end to the typical cycle in the eurozone, where a mild recession is followed by only very subdued growth. Instead, there is a risk of a ‘double dip’, as the region copes with many structural challenges and transitions.
In general, Brzeski sees inflation as “one of the key themes of 2023”, expecting it to come down quickly in America, but be “stickier” in the eurozone.
“We are entering a year with the widest range of possible outcomes and forecasts in years,” Brzeski concluded. “And this is not even taking into account potential blind spots such as the start of a pandemic or a war in Europe that markets simply did not have on their radar screens at the end of 2019 or 2021. It is both interesting and challenging, for the economy, for financial markets, for companies, for households but also for economists.”
Supply chain struggles
On the back of that economic forecast, ING has made three calls for trade and supply chains. Firstly, world trade will hardly grow as consumer demand falters. “Global trade entered the slow lane at the end of 2022 and will continue to face headwinds in the new year,” said Rico Luman, ING senior sector economist. Next year will look “bleak” for containerised trade and while liquid bulk and some dry bulk categories are expected to be stronger, overall world merchandise trade growth is expected to be limited to only 1% in 2023, compared to a ten-year average of 2-3%.
The second call is that frictions in supply chains will persist despite resolving logistics bottlenecks. “Supply chains are expected to remain unbalanced in 2023, due to shifting trade patterns and ongoing mismatches in supply chains for chips but also for other components, parts, as well as raw materials,” said Luman. While logistical bottlenecks started to subside in 2022, recovery of schedule reliability will take much of 2023. “Supply chains will also remain fragile during 2023 as Chinese Covid-19 policies are still unpredictable, the war in Ukraine and related sanctions continue to impact trade, and strikes among the stretched workforce still pose a higher risk in a still inflationary environment.”
The third call sees lower transport costs for overseas container trade, but not in tanker shipping. “After spiking at the start of 2022, container spot rates have plummeted since the summer almost returning to pre-pandemic levels on major trade lanes just before the start of the new year,” said Luman. While container lines are trying to balance excess capacity with blank sailings, the arrival of new ship capacity will keep the downward pressure on freight rates in 2023.
“On the liquid bulk side of global trade, it’s a different story,” Luman said. “The ban on Russian oil and the imposed cap for carrying and insuring Russian oil has impacted trade patterns and led to longer sailing routes. This has resulted in inefficiencies, and the rush to replace piped Russian gas will also continue to push up liquefied natural gas tanker rates in 2023.”
Oil and gas outlook
On the commodities front, Warren Patterson, ING’s head of commodities strategy, and Ewa Manthey, ING’s commodities strategist, expect the oil market to tighten over the course of 2023, European natural gas prices to remain elevated, and demand “woes” to take centre stage for aluminium.
For the oil market, ING expects that Russian supply will fall significantly early next year – in the region of 1.8 million barrels per day year-on-year in the first quarter. “This supply loss coupled with continued OPEC+ supply cuts suggests that the oil market will tighten over the course of 2023,” the authors said.
On the gas front, ING anticipates that 2023 will be a tough year for the European natural gas market. “It is unlikely the region will be able to build storage at the same pace as seen in 2022. Demand destruction will need to continue to ensure adequate supply for the 2023/24 winter. In order to see this demand destruction, prices will have to remain at elevated levels.”
While for aluminium, in 2023 risks for aluminium prices will be mainly to the downside, with the “prolonged war in Ukraine, rising energy prices, low gas availability, high inflation and weakening downstream demand all adding to the bearish outlook for the lightweight metal”. While ING believes a recovery in price should start in the second quarter, any recovery is likely to be slow.
ING’s three calls for China in 2023, meanwhile, expect Covid measures to ease only gradually in the first half of 2023, external demand to be weaker in 2023 due to recession in the US and Europe; and the challenge of technology advancement to lead to record high fiscal deficit.
“As China recovers, and the US and Europe emerge from recession around the second half of the year, China’s trade should show some momentum. Import growth should be stronger than exports as the economy rebounds from easier Covid measures in the second half,” said Iris Pang, ING’s chief economist, Greater China.
Source: Hellenic Shipping News
