Chart of the day: Key indicator points to gloom
The Baltic Dry index – a widely watched leading indicator of global growth – has slid by 60% to a 29-year low over the past three months.
A widely watched leading indicator of global growth has slid by 60% to a 29-year low over the past three months. The Baltic Dry index tracks shipping rates for dry-bulk commodities, such as coal and iron. The slump seems to imply a sharp drop in demand for commodities.
But this indicator has "lost predictive power" since 2008, says Robert Milburn on Barron's.com. Just before the crisis, a glut of ships emerged, created by the scramble to feed China's hunger for raw materials. Since 2009 the global economy has gradually recovered, but it still hasn't soaked up the oversupply of ships, which still exceed demand by around 20%.
The surplus explains why the index has borne little relation to the ups and down of the global economy since the crisis. A lower oil price has reduced fuel costs for ships of late, while there is often a sharp drop before China takes a week off for its New Year.
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