Last month’s German IFO business climate showed improvements in Germany’s manufacturing sector. The indicator is important for the shipping industry because Germany is Europe’s largest economy, and Europe is China’s largest trading partner, engaging in mostly manufactured products that use iron ore, coal and oil as inputs. Thus, when Germany’s business climate rises, it is often positive for shipping companies.
Although it is preferred to use manufacturing business climate as an indicator, the data has not been updated by the IFO institute. However, it is well known that Germany is a country with an emphasis on high quality manufacturing; take Mercedes Benz and BMW for example. Thus, when the German IFO business climate rises, it is generally positive for the manufacturing sector and the shipping industry.
For the month of February, overall business expectations rose to 104.6 from 100.6, marking another jump from 98.1 in December 2012. Business expectations measure the changes in business confidence and is often an early indicator of spending or investment in Germany, as was the case back in 2009. The 100 value is not important as the indicator is indexed to survey data back in January 2000. What analysts often focus on is whether the index is rising or falling.
February’s data suggest that Germany is becoming more optimistic with the global economy. Although austerity measures may be hurting overall demand in Europe, Asia, supported by China and Japan’s stimulus packages, may be driving global demand. This is positive for shipping companies in the short to medium term. Companies that will benefit include DryShips, Inc. (DRYS), Diana Shipping, Inc. (DSX), Ship Finance International, Ltd. (SFL) and Knightsbridge Tankers Ltd. (VLCCF). The Guggenheim Shipping ETF (SEA), an ETF for those who wish to diversify investment across large global shipping firms, will benefit as well.