The obscure but important Baltic shipping index tells us global growth is in trouble

The sweetest little economic index you never heard of is called the Baltic Dry Index and it’s in free fall. Its decline began well before the coronavirus outbreak and doesn’t bode well for world economic growth.

The index measures the leasing rates for the huge cargo ships that deliver iron ore, coal, grains and other bulk commodities to global markets. When demand for these ships rise, the index climbs; when demand falls, the index falls – pretty simple, really.

The index, run out of London by the Baltic Exchange, is considered a fairly reliable, if imperfect, leading economic indicator. It’s imperfect because marginal increases or decreases in shipping demand can push the index up or down pretty quickly, because the supply of ships cannot change quickly.

Still, if the Baltic baby is right this time, we’re in for a storm. The index’s all-time high came in mid-2008, after which it went into steep decline. Not long later, much of the Western world was in deep recession.

On Friday, the index fell to 487, its lowest level since April, 2016. Last week’s loss was 10.5 per cent and marked the eighth consecutive weekly decline. While the coronavirus outbreak is certainly accelerating the slump, the sharp fall began months before anyone heard of the virus. The index’s recent peak came in mid-2019, when it topped 2500. The Donald Trump-inspired trade war between the United States and China helped to propel it down.

Sir Tainley

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