Eurozone economic activity falls steeper last quarter

By Xun Yao Chen, Industrials Analyst • Feb 18, 2013 7:57 pm

A country’s economic activity affects all industries. The shipping industry, which is highly sensitive to industrial production, is no exception. This means shipping companies, that are crucial in transporting raw materials, also closely follows gross domestic production, a measure of economic activity.

GDP declines at a steeper rate

On February 13th of 2013, the Eurostat¹reported a year-over-year decline of 0.9% in the Eurozone’s real gross domestic production (GDP) during the last quarter of 2012. That is worse than the previous two quarters’ -0.5% and -0.6%. The year-over-year changes in the Eurozone’s GDP has been in the negative since the beginning of 2012, following a slowdown in growth in 2011 that was caused by austerity measures brought by the region’s sovereign debt crisis, a worsening aftermath of the Spanish housing bubble’s collapse, and the tightening of the interest rate to cool inflation.

Europe has a say in shipping

Europe’s gross domestic product is less reliant on industrial products (similar to China), but the region is still China’s number one trading partner. Any negative news from Europe will reduce China’s growth rate. This is also harmful to shipping companies such as DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX), and Ship Finance International, Ltd. (SFL) that rely on China’s demand for raw material. It also affects the Guggenheim Shipping ETF (SEA), which is similar to the Dow Jones Global Shipping Index.

Investors should also look at industrial production or PMI data

However, GDP data is often lagging because they are released approximately a month after the end of each quarter. Considering that industrial activity fell at a steeper rate during October and November, the sharp reduction in GDP may not be all that surprising. Investors who are looking at leading indicators may find it more useful to follow data for industrial output or manufacturing purchasing mangers’ index (see “Eurozone industrial production rises, aids shipping” for latest industrial output information).