December economy wrap: Red Sea, US pivot, and EU architect
Every month, Mint’s Plain Facts section brings out an update on key global economic data to thread together the biggest developments in the world that are worth paying attention to. The accompanying analysis and charts attempt to explain how each story is creating ripples on the global stage, where it is headed in the coming weeks, and whether it can impact India. This time, we explain the impact of the attacks on vessels in the Red Sea on world trade and the policy pivot by the US Federal Reserve signalling rate cuts this year.
Coming after two years of elevated shipping costs—first due to covid-19 and then the Russia-Ukraine war—2023 was a year of correction. From about $9,700 in February 2022, the freight rate for a standard 40-foot shipping container came down to $2,195 in January 2023 and fell further to $1,077 by October, according to global freight firm Freightos. Recent attacks on vessels in the Red Sea by Iran-aligned Yemeni Houthi militant group has led to a rise in shipping costs again by forcing major shipping companies to take the much longer route via the Cape of Good Hope.
The costs are still significantly lower than a year ago, the uncertainty is making many countries, including India, nervous. Commerce minister Piyush Goyal said last week that rice trade was likely to be impacted. Oil and manufactured goods are other segments that could get impacted by the rising costs and logistical disruptions.
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