OPERATING RATE %
100
95
90
85
80
75
It seems prudent to assume global recession as the Base Case for 2017 recession
GLOBAL CHEMICAL CAPACITY UTILISATION % 1987 – 2016( to date)
Source: OECD Quarterly National Accounts Dataset
1987 1988
1989 1990
1991 1992
1993 1994
1995 1996
1997 1998
2009 – 2016 AVERAGE = 82 %
apart from June, when it temporarily stabilised at 79.3 %
� It is now only 1.3 % above the March 2009 level, which marked the bottom of the sub- prime crisis in March 2009
The industry is normally around 8 – 12 months ahead of the wider economy, due to its early position in the supply chain. This means that it seems prudent to assume as a Base Case that the global economy will move into recession during 2017.
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009
2010
1987 – 2008 AVERAGE = 91.3 %
NOVEMBER 2016 = 78.3 %
2011 2012
2013 2014
2015 2016
▲ Chart 3 Chemical industry capacity utilisation fell again in November and is close to 2009’ s record low
▼ Chart 4 Production data for the world’ s Top 10 economies confirms a weakening picture
Clearly this is not a consensus view at the moment. But as we have discussed in previous Reports(‘ Business as usual options fade in post-Brexit world’, October 2016), the track record of the CU % correlates very well with IMF data for global GDP.
Chemical production data for the world’ s Top 10 economies also confirms the picture of a downturn, as shown in chart 4:
< Canada has been doing well, Japan has been steady, Italy has been recovering
= But India’ s growth has collapsed from 7.9 % to 1.6 % over the past year
< Brazil has recovered from-3.9 %, but is still only at 0.9 %
= Germany has remained weak, slipping slightly from 0.8 % to 0.7 %
= China has fallen from 5.3 % to-0.3 %: France has fallen from 5.4 % to-0.8 %
= The USA has fallen from 1.5 % to-1.1 %: the UK has fallen from 4.2 % to-3.3 %
This data from the real economy is clearly at variance with the buoyant mood of financial markets in many developed countries. But that is perhaps no great surprise, considering that policymakers have specifically targeted a stock market recovery since 2009, believing as Ben Bernanke wrote in November 2010 that:
“ Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
44
%
12
9
6
3
0
-3
-6
CHEMICAL PRODUCTION IN‘ TOP 10 ECONOMIES’ MONTHLY CHANGE %, NOV 2015 – NOV 2016
Source: pH Report analysis: American Chemistry Council Data
Nov-15 Dec-15
Jan-16 Feb-16
Mar-16 Apr-16
May-16 Jun-16
Jul-16 Aug-16
Sep-16 Oct-16
Nov-16
Canada Japan Italy Indoia Brazil Germany China France USA UK
It seems unarealistic to expect the stock market to see a further Reagan-era type rally without at least a pause in the pace of gains