THE global economy may be hit by a sharp drop in trade following an abrupt decline in the cost of shipping cargoes across the world, analysts say. The Baltic index, a key gauge of shipping costs that is regarded by economists as a reliable indicator of future trading activity, has tumbled since the start of the year.

Research by Morgan Stanley highlights the scale of the fall in the index in recent months, which has taken it down more than 10 per cent compared with a year ago.

The scale of the reversal in both the level and direction of shipping costs — a reflection of the trend in world demand for goods — is emphasised by data showing that early last year these costs had risen more than 250 per cent from a year before.

Daily hire rates for the world’s biggest ships for moving dry cargo have plunged by 45 per cent from a peak in December last year. While these costs can be volatile, Rebecca McCaughrin of Morgan Stanley believes that the trend probably marks a turning point for recent buoyant levels of world trade.

“Leading indicators, such as the Baltic Dry Index, have been signalling a precipitous deceleration in global trade for the last several months,” she said.

Her research also notes that trade activity between key economies has slowed, particularly in Asia.

However, she said that China continued to buck the global trend with its surging export business.

Fears of a steep decline in world trade will fuel anxiety over a broader slowdown in the global economy this year.

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