1. MACROECONOMIC CONTEXT AND OUTLOOK

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• Overall, the global economic context darkened in 2022 for most of the Rhine and Danube countries. After the rapid post-pandemic global economic recovery observed in 2021, the armed conflict between Russia and Ukraine, including effects of high inflation, slow demand, low waters and pandemics re-surge in China heavily weighed on inland waterway freight transport in 2022.
 
• One of the highlights is the coal sector which observed a significant increase on its demand, favoured by initial high prices and supply limitations on natural gas due to the armed conflict between Russia and Ukraine, and the associated imposed sanctions which, in turn, contributed positively to this transport segment. It is estimated that during the first three quarters of 2022, natural gas prices in Europe and seaborne coal prices have averaged 420% and 180% higher, respectively, than their average over the past five years. Risks of price spikes for gas remain somewhat elevated for the coming winter 2023-24.
 
• The Euro area GDP growth estimated at 3.7% in 2022 (compared to 5.6% in 2021), is predicted to fall below 1% in 2023 and to rise to 1.6% in 2024.

 

ECONOMIC OVERVIEW

  • The global economy is still facing uncertainty given its exposure to many shocks, mostly notably, the Covid-19 pandemic and the armed conflict between Russia and Ukraine. Amid repressed demand, longstanding supply chain disruptions and increases in commodity prices, the global economy was characterised by high inflation in 2022 in many economies, leading to central banks tightening their policies. However, the headline inflation has been declining since mid-2022. The global still-high-but-falling inflation forecast points to 8.7% in 2022 and to 7.0% in 2023.
  • The global gross domestic product (GDP) growth estimated at 3.4% in 2022 is predicted to fall to 2.8% in 2023 and to rise to 3.0% in 2024. The feeble and uneven output growth is due to the adverse shocks since early 2022. For advanced economies, growth is expected to decline by half to 1.3% in 2023, before rising to 1.4% in 2024. For emerging markets and developing economies, estimates are, on average, stronger compared to advanced economies, but still uneven among regions, with a growth projection of 3.9% in 2023 and 4.2% in 2024. In low-income developing countries GDP is expected to grow by 5.1%, on average, over 2023-24.
  • Economic activity in Europe in 2022 was more resilient than anticipated given the negative terms of trade impact and the sanctions stemming from the war in Ukraine. In order to tackle the energy crisis, the European Union implemented large budgetary support measures for households and firms. Moreover, the demand compression for gas due to the mild winter and adjustments by industries to substitutes for gas were crucial for the EU economic outlook.
  • The surge of a more contagious Covid-19 variant brought new outbreaks. The disease evolution in 2022 made its way to China where strict containment measures and restrictions were implemented, and therefore, declines in mobility and economic activity in the fourth quarter of 2022 were registered. As Covid-19 waves subsided in January 2023, mobility normalised. As an important actor on world trade and a crucial exporter country, the reopening of China’s economy will likely generate positive spillover effects, especially for countries with which China has stronger trade links.

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    FIGURE 1: PERCENTAGE CHANGE IN GDP, CONSTANT PRICES


    Source: IMF World Economic Outlook Database, Outlook from April 2023
     

TRADE

  • For the world trade volume, growth is projected to decline from 5.1% in 2022 to 2.4% in 2023. In the last two years, and as a result of the pandemic, a drawback in the global demand as well as a shift in the composition of spending from traded goods towards trade in services was observed. In 2022, the war in Ukraine came as an additional burden for goods trade. This trend is expected to further continue in 2023.
  • With the reinforcement of trade barriers in 2022, plus the negative effects of the US Dollar appreciation, traded commodities and products (which are often invoiced in US Dollars) became more costly for numerous economies. It brought negative spillover effects to the 2022 world trade growth which are foreseen to last in 2023. For the inland navigation transport, this led to a drawback of the demand for traded goods in 2022, which should last also in 2023. It will represent an obstacle for the growth of cargo transport. The reason is the strong relationship between trade in goods and cargo transports, particularly with regard to container transport.

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COMMODITY PRICES AND THEIR IMPACT ON INLAND WATERWAY TRANSPORT

 

    Crude Oil

    • Initially, between 2021 and mid-2022, crude oil prices, together with fuel prices in inland navigation, significantly increased. From the second half of 2022, specifically between August 2022 and February 2023, this surge ceased. Indeed, crude oil prices receded by -15.7% between August 2022 and February 2023 because of the weakened demand due to a slowing global economy. According to future markets, the crude oil prices will retreat by -24.1%, costing on average $73.1 a barrel in 2023 compared to $96.4 a barrel in 2022 and continue to fall in the coming years, down to $65.4 in 2026.
    • Oil price is a leading indicator for the transport sector due to its essential utility for transport activities. From the supply side, with the crude oil prices decreasing in 2023, fuel costs for Rhine operators should reduce.
    • On the demand side, although the headline inflation (which accounts for all commodity prices) is foreseen to decline in 2023, it will most certainly remain at a high level. Considering the rising effects of global trade barriers, the level of demand is expected to weaken, contributing to the above-mentioned downward movement in oil prices.

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      FIGURE 2: COMMODITY PRICE INDICES (2016 = 100)


      Source: IMF World Economic Outlook Database, Outlook from April 2023

     
    Gas and Coal

    • The first half-year of 2022 was marked by very high gas and coal prices. In the second half-year, natural gas prices at the European trading hub1 receded by -76.1% from record highs in August 2022 to $16.7 per MMBtu2 in February 2023 as concerns about supply shortages faded. Prices reached nearly $100 per MMBtu in late August when EU countries raced to refill their gas storage facilities amid fears of supply shortages during the winter. This followed Russia’s shutdown of pipelines’ gas supplies to European countries.
    • For the winter of 2022-23, a crisis was avoided, due to large storage at European facilities owing to higher liquified natural gas (LNG) imports and lower gas demand amid high prices, as well as an atypically mild winter.
    • The reduced demand owing to an economic slowdown in China and substitution of other fuel sources such as coal also helped ease pressures on the global LNG market. There are risks that gas prices may increase for the winter 2023-24.
    • Spillovers from gas markets caused a +50.9% surge in coal prices between August 2022 and February 2023.

     
    Agricultural commodities and foodstuff

    • In 2022, due to the supply shocks linked with the war in Ukraine, food and beverage prices peaked in May 2022. In the second half of 2022, the price surge came to a halt, but prices remained at a high level. Indeed, the supply outlook improved as Ukrainian wheat and other products entered the global market after the Black Sea corridor initiative was renewed in November 2022.
    • High prices also provided incentives to other regions, such as the European Union and India, to step up wheat production. Between August 2022 and February 2023, prices of raw agricultural materials declined by -9.1% amid slowing global demand. However, similar to base metal prices, they have partly rebounded in recent months.

     
    Metals

    • After a first rise in 2021 and 2022, the base metal price index decreased below levels preceding the start of the armed conflict between Russia and Ukraine. This decrease emerged after the invasion, but the broad-based retreat was amid slowing Chinese metal demand that accounts for approximately half of global consumption of major metals. With China’s reopening of economic and ports activities and increased infrastructure spending, base metal prices partially rebounded, increasing by +19.7% from August 2022 to February 2023.

     
     

    ECONOMIC SENTIMENT – CONSUMER CONFIDENCE

    • At the beginning of 2022, consumer confidence started to crumble, reaching a low point in September 2022. It then started to recover, fuelled by better expectations of consumers regarding the general economic situation and major intentions for purchases. This represents a potential factor to boost future demand and consequently reflect increasingly on the transport sector activities. In May 2023, the Economic Sentiment Indicator was 95.2, which represents a fall compared to April 2023 which was at 97.3.

     
     

    MAIN CONSEQUENCES FOR RHINE AND DANUBE NAVIGATION IN BRIEF

    • The global economic context darkened in 2022 for most of the Rhine and Danube countries. Indeed, the armed conflict between Russia and Ukraine mainly resulted in a rapid rise of energy prices and inflation for the Rhine and Danube regions. For Rhine cargo transport, apart from other important factors, inflation further deteriorated the already weakened private consumption which contributed to a negative impact on container transport. For bulk markets in Europe, rising energy prices translated into an increase of production costs. This negatively impacted bulk transport overall, with the exception of coal transport.