World shipping has fallen into a deep slump over the late summer, dashing hopes of a quick recovery from the global trade recession earlier this year and heightening fears that the six-year economic expansion may be on its last legs.
Freight rates for container shipping from Asia to Europe fell by over 20pc in the second week of August, even though trade volumes should be picking up at this time of the year. The Shanghai Containerized Freight Index (SCFI) for routes to north European ports crashed by 23pc in five trading days.
The storm in the industry comes as the New York state manufacturing index for July plummeted to a recessionary low of -14.9, the lowest since the Great Recession and one of the steepest one-month drops ever recorded.
The new shipments component fell to -13.8, and new orders to -15.7. A similar drop occurred in 2005 and proved to be a false alarm but the latest fall comes at a delicate moment for the world economy. There is now a full-blown August storm sweeping through global markets. The Bloomberg commodity index dropped to a fresh 13-year low last week and the MSCI index of emerging market equities touched depths not seen since August 2009.
A gauge of emerging market currencies has fallen for the eighth week - the longest run of unbroken declines since the beginning of the century.
China's surprise devaluation continues to send after-shocks through skittish global markets, already on edge over a likely rate rise by the Fed in September - though this is now in doubt.
The currency move was widely taken as a warning that the Chinese economy is in deeper trouble than admitted so far, a menacing prospect for exporters of raw materials and for trade competitors in Asia. It threatens to transmit a fresh deflationary impulse through the global system.
The great worry is that companies in emerging markets will struggle to service $4.5 trillion of debt taken out in the boom years when quantitative easing by the Fed flooded the world with cheap money, much of it at irresistible real rates of 1pc. This is up from $1 trillion in 2002.
The monetary cycle has gone into reverse since the Fed ended QE in October 2014 and cut off the flow of fresh liquidity. While the first rate rise in eight years has been well-telegraphed, nobody knows for sure what will happen once tightening starts in earnest. This stress-test could prove even more painful if China has abandoned its (crawling) dollar peg and is seeking to protect export margins by driving down its currency. New data from the Port of Hamburg shows the damage this currency surge may be doing to Chinese companies. Axel Mattern, the port's chief executive, said a 10.9pc drop in trade with China was the chief reason why volumes of container cargoes passing through the port fell 6.8pc in the first six months.
"During the first six months of the year the euro was on average 19pc lower than the yuan, making purchase of Chinese goods costlier for European importers," he said.
If so, this is grist to the mill of those arguing that China timed its switch to a market-driven exchange rate in order to disguise "currency warfare", or a beggar-thy-neighbour strategy as it used to be known. The Chinese central bank has dismissed such claims as "nonsense".
The implication from poor figures is that trade is no longer the pulse of the global economy. Other indicators are less worrying.
Both credit and key measures of the money supply are rising briskly in Europe, the US, and latterly in China as well, pointing to a recovery later this year. These forces may prove to be more powerful in the end. (© Daily Telegraph, London)