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Suez Canal revenues decline in wake of sluggish global trade - Daily News Egypt

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Suez Canal revenues decline in wake of sluggish global trade

Global trade volume needs to rise by 9% a year for Egypt to gain its return on investment (ROI) for the New Suez Canal 

Suez Canal revenues declined by 4% in January, compared to the same period in 2016. The total revenues registered at $395.2m in January versus $411.8m in the same month in 2016. One of the main reasons behind the decline in revenues is the diminishing global trade.

2016 was the fifth consecutive year of sluggish trade growth and the year with the weakest trade performance since the Global Financial Crisis of 2007-2008. Current estimates of growth in the volume of trade in goods and services range from 1.9-2.5%, but preliminary high-frequency data suggests that merchandise trade volumes may have grown by only about 1%, according to the World Bank’s “Trade Developments in 2016” report published on Tuesday.

According to the report, 2016 does stand out among the other post-2008 years, due to the fact that trade sluggishness is a characteristic of both advanced and emerging economies. Since 2008, trade values of services and trade values of goods have followed different trajectories, with growth in services trade being more resilient during the global financial crisis and the global trade slowdown of recent years.

The report cites that trade developments in 2016 continued to reflect enduring structural determinants, such as the maturing of global value chains (GVCs) and the slower pace of trade liberalisation, as well as cyclical factors and notably slow global growth.

Moreover, the increase in political uncertainty may also have contributed to trade slowing down further in 2016. The negative correlation between economic policy’s uncertainty and trade growth is confirmed when we look at a broader sample spanning 18 countries over 30 years. The analysis in the report indicates that a 1% increase in uncertainty is associated with a 0.02% reduction in volume growth in goods and services trade.

Consequently, the increase in uncertainty in 2016 may have reduced trade growth by about 0.6%, which is equivalent to around 75% of the difference between trade growth rates in 2015 and 2016.

Egypt has recently expanded the Suez Canal by creating a second lane in the canal to reduce waiting times; the total investments of the project were around $8.2bn. In order for Egypt to gain a return on the Suez Canal expansion project investment, global trade volume would need to rise by around 9% a year for the canal to reach its traffic goal, according to a Capital Economics report.

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