Suez Canal traffic points to weakness in Europe

A slowdown in traffic through the Suez Canal indicates more problems ahead for the European economy

The ebb and flow of global trade, or lack of it, has long been reflected in the waters of Egypt's Suez Canal.

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This seems to remain as true today as it ever has been, with a slowdown in traffic through the vital channel connecting the Mediterranean Sea with the Red Sea pointing to more tough days ahead for Europe.

The volume of shipments moving through the canal has been steadily declining compared with last year, Suez Canal Authority data shows. Traffic in October was 2 per cent lower than a year earlier, after a 3.2 per cent year-on-year drop in September.

"I would expect the trend to be in the opposite direction," said Douglas McWilliams, the chief executive of the UK-based Centre for Economics and Business Research.

Traffic declines last month narrowed to 0.1 per cent from a year earlier, according to data released on Thursday.

But the lack of growth through the canal indicates continued problems for Europe, said Mr McWilliams, who was in Dubai this month to address the local chapter of the Institute of Chartered Accountants in England and Wales.

"I attribute this to the overall economic weakness of Europe," Mr McWilliams said. "It is what I would call corroborative information."

Suez Canal traffic primarily represents imports from the Far East to western Europe.

Canal traffic and air-freight statistics tend to supply the best up-to-date snapshot of economic conditions, Mr McWilliams said.

"The Suez data is a good leading indicator of world trade, particularly trade between the Far East and western Europe," he said. "Any trend in the Suez Canal should be reflected in imports a few weeks later."

Trade volumes through the canal were expected to rebound after a slow 2010 and the turmoil of the Arab Spring. With exports from Libya and other Middle East countries disrupted through the year, imports from Asia were expected to increase as Europe's economy solidified.

Instead volumes continue to drop, including a 7.4 per cent decline in August compared to a year earlier.

Traffic through the canal was increasing in the early part of the year, with volumes up 4.7 per cent in January and 7.6 per cent in February from the year-earlier periods, according to data from the Suez Canal Authority. But turmoil in Egypt slowed shipments through the canal and volume sank 7.7 per cent in May compared with May last year.

Despite the decline in traffic, the canal is still a key economic driver for Egypt.

Revenue from the canal was US$435.5 million (Dh1.59 billion) last month compared with $412.8m in the same month last year. On Thursday the canal authority announced a 3 per cent rise in fees for all ships going through Suez, beginning in March.

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