Navigating the new normal

In the 2022 Ports and Freight Yearbook, we highlighted the risk of the return of stagflation. Our warnings proved to be about right. We saw a record-high inflationary environment during 2022 and the New Zealand economy contracted 0.6% in the December quarter of 2022 compared to the previous quarter. The contraction marks the potential start of a technical recession in 2023. Softening domestic consumer spending could see import volume growth slow while a slowing global economy is already impacting exports, as outlined in the 2023 Ports and Freight Yearbook.

The path forward is unclear and underlying economic uncertainties remain persistent as the global economy charts a journey to a new normal. Early signs show central banks are making ground against inflation, but consumer price growth remains elevated in many economies, at 6.4%  in the United States and 10% in the European Union. As a result of these policy decisions, global growth is expected to slow in 2023 to 2.6% from 2022’s 3.2%, according to the OECD (as at March 2023).

This uncertainty sets the scene for global trade flows in 2023. Import volume growth into New Zealand bounced back from the pandemic, growing 2.4% in 2021 and 9.7% in 2022. However, export volumes reflect the global story of slowing growth and soft consumer spending, growing 4.6% in 2021 but falling 4.7% in 2022.

There is cause for optimism, with the reopening of China’s economy and early indications that economic activity in China is responding positively. But again, an immediate return to pre-pandemic levels of growth in China is unlikely, with even the Chinese government announcing a growth target of 5% for 2023, below the (unachieved) 2022 target of 5.5%. Add to this the recent volatility in global financial markets, with the collapse of Silicon Valley Bank and takeover of Credit Suisse, the prospect of a return to pre-pandemic levels of growth seems a remote possibility.  

Turning back to the domestic economy, we saw two extreme weather events in early 2023 - the Auckland floods and Cyclone Gabrielle. The impact of these events has, and will continue to, lead to domestic supply chain disruption, predominantly confined to the North Island. However, the unprecedented scale of these events will have flow on impacts for the New Zealand economy, such as adding further inflationary pressure through already constrained supply chains. Damage to agriculture and horticultural outputs will also result in lower trade outflows and increased inflows to plug the gap in the domestic market.

These economic uncertainties pose further downside to the demand for freight. As the global economy continues to reset itself after the pandemic, supply chains have begun adapting to new trends in the flow of global trade – spurred in part by a transition from ‘just in time’ to ‘just in case’ supply chain management. But what this new normal will look like is uncertain as the global economic environment remains dynamic and volatile. It will be a while yet before we see exactly what the new normal will look for freight and global trade.

This is where the message of ‘preparation over prediction’ comes in. The outlook for 2024 and beyond is too uncertain to draw any definitive predictions. A better strategy is to identify a set of scenarios for how trends could play out. This allows for greater adaptability to external shocks, a trait that has proven highly useful in the current environment.

Stay tuned for the next blog in our series covering climate change and supply chains and catch up on our supply chain resilience article here.