1. MACROECONOMIC CONTEXT AND OUTLOOK

• The global macroeconomic context in 2023 has shown signs of improvement. Inflation decreased at a very rapid pace, and GDP growth, although relatively low, is steady. Uncertainty is still high however, as world trade has suffered from rising geopolitical tensions in the Middle East, leading it to stagnate in 2023 despite previous hopeful forecasts.
• In the wake of the pandemic, many countries questioned the free trade paradigm and started to gravitate towards more protectionist policies. The Russian full-scale invasion and war of aggression against Ukraine and the resulting fears of natural gas shortages led these countries further towards this situation, with three times as many trade barriers being constructed in 2022 than in 2019. 2023 was no exception, with more than 3000 trade barriers put in place and a rising trend towards friendshoring and an overall fragmentation of trade relations between pro-Russian and anti-Russian countries.
• The price of most commodities has normalised, although the aforementioned tensions in the Middle East let uncertainty linger about the future price of crude oil. Natural gas prices have continued falling but remain in the upper range of historical prices.

ECONOMIC OVERVIEW¹

• The global economy is showing signs of recovery in the aftermath of the Covid-19 pandemic and the initial disruptions after the start of the Russian full-scale invasion and war of aggression against Ukraine, with most indicators pointing to a soft landing. In 2023, economic growth has proven to be surprisingly resilient, given the energy and food crisis caused by the war, the global surge in inflation and the supply chain disruptions caused by the pandemic. Inflation, for that matter, has decreased, and is expected to reach 2% by 2025 in advanced economies, a rate that central banks usually aim for. On the other hand, trade has been subjected to more difficulties, with numerous trade barriers raised among a worldwide restructuration of trade patterns, hindering its recovery.
• Global GDP growth is steady but weak at 3.2% (compared to a pre-pandemic annual average of 3.8%), a rate that is expected to carry on until 2024 and 2025. This relatively low growth is explained by the adoption of restrictive monetary policies to fight inflation, the withdrawal of the exceptional fiscal support granted during the pandemic in many countries, as well as the long-term decline of productivity growth. It is important to note that economic growth is unevenly distributed around the world with, for instance, the GDP growth rate of the United States unexpectedly exceeding its pre-pandemic average. GDP growth in emerging markets should remain strong, stabilising at its current rate of 4.2% from 2024 onwards. In the euro area, growth is slow but resilient at 0.4% in 2023 and is projected to rise to 0.8% in 2024 and 1.5% in 2025, due to strong household consumption and labour markets. Meanwhile, low income and developing countries still show signs of scarring from the numerous crises of recent years, and thus their recovery is expected to be slower and more difficult.
• Inflation – one of the main concerns in relation to a potential recovery of the world economy – has been declining rapidly ever since mid-2022, with the global average headline inflation having fallen from 8.7% in 2022 to 6.8% in 2023 and expected to keep decreasing to 5.9% in 2024 and 4.5% in 2025. The same is true of the countries in the euro area, where the average headline inflation fell from 8.4% in 2022 to 5.4% in 2023 and should reach the 2% target defined by the European Central Bank in 2025. The energy price shocks that used to pull inflation up in the euro area are fading, which is likely to bring it down to this 2% target. The ECB and other central banks around the world should be able to ease their monetary policy as early as the third quarter of 2024, which would encourage private investment and restore purchasing power to consumers, and in turn fuel economic growth.
• Some risks remain, however, as geopolitical uncertainty is still high as the Russian full-scale invasion and war of aggression against Ukraine rages on and tensions in the Middle East are rising, affecting the safe passage of seagoing ships trough the Red Sea and threatening to prevent the passage of oil tankers through the Strait of Hormuz. This could hinder medium-term economic growth and alter the availability of food and energy, and hence cause a resurgence in inflation. Moreover, the decrease in inflation in the second half of 2022 and 2023 has mostly been due to headline inflation being dragged down by fuel and food prices; meanwhile, core inflation has proven more persistent and could stall disinflation, although it is expected to decline by 1.2% in 2024.

 

FIGURE 1: PERCENTAGE CHANGE IN GDP, CONSTANT PRICES


Source: IMF World Economic Outlook Database, Outlook from April 2024
 

TRADE

• In 2023, global trade followed the same trends as in 2022: a larger-than-expected decline in trade volume (-1.2% from its peak in late 2022)² due to the Russian full-scale invasion and war of aggression against Ukraine and a shift in the composition of spending from traded goods towards services in the aftermath of the pandemic. Towards the end of the year, the Red Sea crisis further increased the burden on trade, leading it to almost stagnate during 2023 (+0.3%) despite a promising first semester. Global trade is however expected to recover and grow slowly in 2024 and 2025, at a rate below its pre-pandemic average (respectively 3.3% and 3.6%, against a previous average of 4.9%).³
• Indeed, on 19 October 2023, the Houthi movement in Yemen started to attack merchant vessels in the Red Sea. This incident, known as the Red Sea crisis, caused hundreds of ships to alter their course and sail through the Cape of Good Hope to avoid attacks. Despite efforts by the UN Security Council to enforce freedom of navigation, this crisis led to a significant drop in international container transport at the end of the year 2023. In Europe, where 75% of exports usually travel through the Red Sea, the fall was particularly severe. Overall, container throughput in Europe remained stable in 2023 despite a weak second semester and the difficulties caused by the crisis, ending the year with 0.3 percentage points lower than in January. European ports saw the beginning of a recovery at the start of 2024, as their container traffic rose by more than +13% from January to April 2024.⁴ However, this may be temporary, as international tensions and uncertainty remain high, and since this surge may be partly due to prospects of an economic recovery in Europe or ships having sailed around Africa instead of going through the Red Sea.
• Similarly to 2022, 2023 has witnessed a strong reinforcement of trade barriers, with three times as many being created in both years compared to 2019. This, combined with a decline in foreign direct investments and cross-border mergers, as well as a growing trend towards reindustrialisation, is expected to cause increased volatility in the price of commodities, including some that are transported in containers.⁵

 
 

COMMODITY PRICES AND THEIR IMPACT ON INLAND WATERWAY TRANSPORT (IWT)

CRUDE OIL

• Crude oil prices significantly increased between 2021 and mid-2022 due to oil production struggling to catch up with a quickly rising demand after most countries relaxed their pandemic-related restrictions, and to the Russian full-scale invasion and war of aggression against Ukraine. This, in the same time frame, drove up fuel prices in inland navigation with the crude oil prices. From August 2022 to February 2023, however, the latter fell by -15.7% because of a weaker growth in global demand and a fully caught-up supply. This decrease has continued throughout 2023 (-13.9%, to $83 per barrel) and carried on into early 2024. Financial markets suggest that crude oil prices will decrease by -2.5% year over year, to eventually average $78.60 per barrel by the end of 2024. The Red Sea crisis caused concerns as to the availability of oil imported from the Arabic Peninsula, but the impact on oil quantities and prices for European consumption turned out to be minor.
• Oil price is a leading indicator for the transport sector due to its essential utility for transport activities. The decrease of crude oil prices seen in 2023 and expected in the following years should translate into lower fuel costs for Rhine operators. In addition, the oil price influences the transportation of oil products.

 

FIGURE 2: COMMODITY PRICE INDICES (2016 = 100)


Source: IMF World Economic Outlook Database, Outlook from April 2024
 

GAS AND COAL

• The first six months of 2022 witnessed a significant increase in the prices of gas and coal; the second half of 2022, however, was marked by an equally sharp fall, with gas prices at the European trading hub⁶ plummeting by -76.1% from their record highs of August. This trend carried on until 2023, when natural gas prices at the European trading hub reached $16.7 per MMBtu⁷ in February 2023 as concerns about supply shortages faded. Increased LNG⁸ imports, as well as reduced gas demand due to high prices, an economic slowdown in China, and a substitution to alternative fuel sources such as coal helped prevent any shortage. Moreover, the weather in late 2022 and throughout 2023 was unusually mild – particularly in the winter of 2023 – contributing further to lower gas demand in Europe.
• Overall, Title Transfer Facility trading hub prices in Europe fell by -24.4% from August 2023 to February 2024, where they remained in the upper range of historical prices at $8.10 per MMBtu. Gas prices are however projected to rise slightly and average $9.45 in 2024, before slowly declining again to $8.73 in 2029.

 

AGRICULTURAL COMMODITIES AND FOODSTUFF

• Food and beverage prices reached their peak in May 2022, amid the supply disruptions caused by the war in Ukraine. However, their increase slowed down after the Black Sea grain corridor initiative was renewed in November 2022, allowing Ukrainian wheat and other exports to re-enter the global market. Prices remained high, however, spurring increases in wheat production in the European Union and India, among others. The prices of raw agricultural materials declined by -9.1% between August 2022 and February 2023, then fell further during 2023, reaching their pre-pandemic levels by the end of the year due to abundant global supplies.

 

METALS

• After a first rise in 2021 and 2022, the base metal price index decreased below levels preceding the start of the Russian full-scale invasion and war of aggression against Ukraine. Slowing Chinese metal demand was an additional factor in this decline, as China usually accounts for approximately half of the global consumption of major metals. However, China’s reopening of economic and ports activities and increased infrastructure spending led to a record steel production, causing base metal prices to rise by +4.7% between August 2023 and February 2024 (after already increasing by +19.7% between August 2022 and February 2023).

ECONOMIC SENTIMENT – CONSUMER CONFIDENCE

• Consumer confidence provides an indication of developments of households’ consumption and savings. An indicator above 100 signals a boost in the consumers’ confidence towards the future economic situation and points to consumers being more inclined to spend money. Values below 100 indicate a pessimistic attitude towards future developments in the economy, possibly resulting in a tendency to save more and consume less.
• After a slight rise in the last months of 2022, consumer confidence started to degrade slowly from January 2023, before crumbling in March. The Economic Sentiment Indicator eventually reached a drop in October 2023 at 93.6, before reverting back to 95.9 in December 2023, a recovery mostly attributed to improved confidence among retailers, as well as the services and the construction sectors. It is still below its long-term average of 100, under which it lapsed in mid-2022.

MAIN CONSEQUENCES FOR RHINE AND DANUBE NAVIGATION IN BRIEF

• Despite a recovering European economy and falling inflation, Rhine and Danube navigation still declined in 2023, after a difficult year 2022. This is due to lingering geopolitical tensions in Ukraine and the Middle East as well as structural shifts in global trade, with a high number of barriers being implemented and a trend towards onshoring and friendshoring.⁹ Commodity prices have stabilised after months of high volatility, but gas prices remain high.