Every month, Mint’s Plain Facts section brings out an update on key global economic data to thread together the biggest developments in the world that are worth paying attention to. The accompanying analysis and charts attempt to explain how each story is creating ripples on the global stage, where it is headed in the coming weeks, and whether it can impact India. This time, we explain the impact of the attacks on vessels in the Red Sea on world trade and the policy pivot by the US Federal Reserve signalling rate cuts this year.
Every month, Mint’s Plain Facts section brings out an update on key global economic data to thread together the biggest developments in the world that are worth paying attention to. The accompanying analysis and charts attempt to explain how each story is creating ripples on the global stage, where it is headed in the coming weeks, and whether it can impact India. This time, we explain the impact of the attacks on vessels in the Red Sea on world trade and the policy pivot by the US Federal Reserve signalling rate cuts this year.
Costlier trade?
Coming after two years of elevated shipping costs—first due to covid-19 and then the Russia-Ukraine war—2023 was a year of correction. From about $9,700 in February 2022, the freight rate for a standard 40-foot shipping container came down to $2,195 in January 2023 and fell further to $1,077 by October, according to global freight firm Freightos. Recent attacks on vessels in the Red Sea by Iran-aligned Yemeni Houthi militant group has led to a rise in shipping costs again by forcing major shipping companies to take the much longer route via the Cape of Good Hope. The costs are still significantly lower than a year ago, the uncertainty is making many countries, including India, nervous. Commerce minister Piyush Goyal said last week that rice trade was likely to be impacted. Oil and manufactured goods are other segments that could get impacted by the rising costs and logistical disruptions.
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Costlier trade?
Coming after two years of elevated shipping costs—first due to covid-19 and then the Russia-Ukraine war—2023 was a year of correction. From about $9,700 in February 2022, the freight rate for a standard 40-foot shipping container came down to $2,195 in January 2023 and fell further to $1,077 by October, according to global freight firm Freightos. Recent attacks on vessels in the Red Sea by Iran-aligned Yemeni Houthi militant group has led to a rise in shipping costs again by forcing major shipping companies to take the much longer route via the Cape of Good Hope. The costs are still significantly lower than a year ago, the uncertainty is making many countries, including India, nervous. Commerce minister Piyush Goyal said last week that rice trade was likely to be impacted. Oil and manufactured goods are other segments that could get impacted by the rising costs and logistical disruptions.
Policy pivot
After aggressively hiking the interest rate for more than a year, the US Federal Reserve has kept the rate steady since August in what has been termed as a ‘higher-for-longer’ interest rate regime to bring inflation towards the 2% aim. However, in its latest policy meeting in December, the Fed, while keeping the interest rate unchanged, signalled that there could be at least three rate cuts in 2024. While this was less than what the markets had anticipated, it was still seen as a policy pivot, which led to the 10-year US bond yield to slide below 4%. The minutes of the meeting, due this week, will offer more clarity on the Fed’s stance. The rate cut signal would be particularly helpful for the Reserve Bank of India, which is also expected to deliver rate cuts in the current year, should inflation continue to move towards the medium-term target of 4%.
Legal trouble
Apple, a dominant player in the global smartwatch segment, has been in legal trouble after California-based medical monitoring technology company Masimo claimed that the company had infringed upon its patent of the pulse-reading feature. An unfavourable court ruling resulted in a temporary pause on the sale of its Series 9 and Ultra 2 smartwatches in the US. However, an appeals court last week put a pause on the ban for now, allowing Apple to resume sales of its flagship watches, pending the hearing of the appeal. Despite the relief, the legal trouble is not completely over for Apple, which still faces the risk of spending money on settling the lawsuit or working its way around the technology. The company has a strong presence in the global smartwatch market, with a 7% year-on-year increase in shipments in the July-September quarter. But the lawsuit threatens negative publicity and leaves room for competitors to increase their share.
Remembering Delors
For facilitating the creation of a single market in the European Union, Jacques Delors has left an unforgettable mark in the modern world economy. Delors, who served as the president of the European Union from 1985 to 1995 and is known as the architect of the modern EU, died at the age of 98 last month. From the common euro to Schengen agreement for travellers, Delors had many feathers to his hat, which led to European nations maintaining their dominance in the global economy at a time when China and India had begun to find their feet. The reforms in the 1980s and 1990s resulted in the EU’s GDP share in the world to peak at nearly 30% in 1992. While the EU’s dominance has faltered in recent years, with the UK also leaving the bloc, Delors’ contribution remains universally acclaimed as one of the most far-reaching and innovative economic experiments in history.
Covid’s comeback
Nearly four years after the covid-19 outbreak, the world is witnessing a rise in infections again. JN.1, a sub-variant of Omicron, has been classified by the World Health Organization (WHO) as a new “variant of interest”. The variant has seen a rapid global spread, with a sharp rise in infections seen in the weeks leading up to the holiday season.
India along with China, Singapore, Malaysia, Indonesia, and the Philippines, among others, have recorded a rise in new cases, with governments issuing advisories to contain the spread. While the increase in reported cases so far is small compared to previous waves, the risk of a wider spread may add to a slew of uncertainties the world is already grappling with such as the trade slowdown and the ripple effects of geopolitical crises. Experts have dismissed the need for strict lockdown measures for now but advocated for precautionary measures such as social distancing and usage of face masks.
