The seismograph of globalization

Globalization is already retreating anyway - Brexit and trade wars are weighing on the economy. The mood in the markets is still jubilant. But now a new fear is causing the reliable Baltic Dry Index to collapse.

Onthe stock exchanges, business has continued as before, as if everything was in perfect order. American Wall Street broke a new record this week. The German share index Dax has also gained more than 500 points in the past few days.

Another index already indicates adversity. The so-called Baltic Dry Index has dropped to its lowest level since 2016. The barometer records the prices for worldwide freight rates, so it is considered a fairly reliable indicator of globalization and the state of the global economy.

Because a large part of global trade, especially raw materials , is shipped across the ocean. The index has been in decline since autumn.

The escalation in the trade conflict between the United States and China has caused prices for ocean freight to plummet at times. The index also suffered from higher fuel prices, bad weather on important routes to Brazil and the United States, and a seasonally weak first quarter.

   Since the outbreak of the corona virus , the barometer has been in free fall. In five weeks, the index value almost split into three. All of this at a time when Britain left the EU and bilateral trade agreements are

   replacing the old order of globalization.

  Companies are taking consequences

   The good mood on the stock exchanges is in stark contrast to the bad news from the economy: the sporting goods manufacturers Nike and Adidas had to close shops in China because of the corona virus. 

   The Cathay Pacific airline sends the 27,000 employees on unpaid leave for three weeks.

    Art Basel in Hong Kong, after all the largest art fair in Asia, has been canceled. The Korean car manufacturer Hyundai had to stop

    all production in its own country because it can no longer get wiring harnesses. And and and.

   Travel restrictions are also increasing. Foreigners who have been to China   in the past two weeks are no longer allowed to enter the United States without further notice.

   It is not yet clear how much the consequences of the corona epidemic will dampen the global economy and harm globalization. Nevertheless, it is already clear that Germany will be hit particularly hard as an export nation .

  Not only is the Baltic Dry Index descending, but also its big brother. The Baltic Exchange Capesize Index, which records the freight rates for large cargo ships that no longer fit through the Panama Canal or                          Suez Canal and have to sail around the Cape of Good Hope, has even slipped. An all-time low and an alarm signal.

  "Once again it shows that there is little scope for structural disturbances in our globalized industrial society,"

   says Mike Rosenberg, professor of corporate strategy at the IESE Business School in Barcelona. 

   "Anything that disturbs the system with its sensitive global supply chains can brutally bring them to a

   standstill."

Since the outbreak of the corona virus , the barometer has been in free fall. In five weeks, the index

value almost split into three. All of this at a time when Britain left the EU and bilateral trade agreements are replacing the old order of globalization.

    Corona hits the world economy at a sore point 

      First, China's growth rates are downgraded because production, exports, consumption, trade and                              

      tourism are slowing. This happened for example this week at Goldman Sachs , JP Morgan or   

      Citigroup , who have all revised their outlook for China downwards. The next step is the forecast for the

      USA and finally for the entire global economy.

      The virus epidemic hits the globalized economic world at its sore point. Since US President Donald Trump

      took office, the frontiers in the US have been less permeable than before. Accordingly, net immigration

      there has dropped to its lowest level in more than a decade.

       This should lead to young Asians staying more in their home countries and establishing productive start-ups there instead of in the

       western industrialized nations. Companies have also become more reserved. Cross-border mergers plummeted a quarter last year, while the

       volume of all deals has remained roughly the same.

    Even a recession is possible

“ If the virus is still rampant for three weeks and then disappears again, the world should quickly shake off the consequences. If the epidemic turns out to be worse, China's economic performance will collapse due to

      the extensive disease protection measures. The world would then go into recession. "

      Accordingly, some experts are irritated that, despite all these warning signals, investors have so far not

      wanted to know about the risks to prices and growth. "Almost every customer we speak to is waiting for

      them to start at lower prices," says Tobias Levkovich, chief equity strategist at Citigroup. "Exactly that leaves a queasy feeling."

      From this perspective, Germany's current account figures from this week seem like a last hurray. Germany therefore achieved a balance sheet surplus of the equivalent of 262 billion euros last year, making it once

      again the global leader. The figures of the ifo Institute reflect the strength as an export nation, which again

      exported significantly more goods and services than imported in 2019. If this reverses, growth will be

      dampened for years.