Lou Jiwei speaks of below 7.0% growth
On July 12th, China’s Finance Minister Lou Jiwei signaled that China’s Gross Domestic Product (GDP), a measure of economic output, may fall below 7.0% in the second half of the year, which is below the 7.5% official target set by the new government for this year. Historically, led by investments, GDP has grown at an average of 10% over three decades. But that has changed lately as the golden age of investment-led boom came to an end a few years ago, and the new government is tolerating lower economic growth for long-term sustainability, in addition to making reforms that will open China up to more competition, urbanization, private enterprises and consumption.
Implication for tankers
Since car sales and oil import growths are highly sensitive to economic growth, Lou Jiwei’s comment points to a negative outlook for the tanker industry. Whether his forecasts will be realized or not is yet to be seen; car sales growth remains robust, which Market Realist updates on a regular basis. However, this is a potential risk because it appears the new government is able to tolerate lower economic growth. If a 7% economic growth does happen, it will be negative for tanker firms’ earnings. This includes Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), Ship Finance International Ltd (SFL), as well as the Guggenheim Shipping ETF (SEA).
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