42
Chemical industry data is better at forecasting than the IMF
The ACC data shows the percentage change in CU % updated to include reported data for August 2016.
As can be seen, there is extremely close correlation between the two sets of data.
Critically, however, the ACC data is realtime, generally being produced within a few weeks of the end of each month. But the IMF data is subject to major revision, and as we noted in July( The pH Report, Brexit opens new faultlines in the‘ Ring of Fire’):
“ Their models have proved exceptionally bad at forecasting in recent years – due presumably to their refusal to include adjustments for demographic trends.”
Chart 3( repeated from the July Report for convenience) confirms the problems created by the IMF’ s continued over-optimism on the economic outlook. This has created shortterm opportunities for agile traders, but has proved positively misleading for anyone trying to plan for the future. The data has caused many companies to assume that demand would be more robust than in reality, and so encouraged further over-capacity to develop.
Back in 2011, for example, as chart 2 shows, the IMF was forecasting growth of almost 5 % in 2016, and it was still forecasting 4 %
Percent change, year-on-year
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2010
IMF WORLD REAL GDP GROWTH FORECAST 2010 – 2020 actual growth
2012
2014 forecast
Sept 2011 forecast Oct 2012
forecast Oct 2013
2016
SOURCE: International Monetary Fund( IMF)
OPERATING RATE % forecast Oct 2016
100
95
2018
90
85
80
75
1988 forecast
Oct 2014
1990 forecast Oct 2015
2020
GLOBAL CHEMICAL CAPACITY UTILISATION % 1987 – 2016( to date)
1992
Chart 3: Global chemical industry capacity utilisation is signalling a downturn
Chart 2: IMF forecasts have been consistently over-optimistic
1987 – 2008 AVERAGE = 91.3 %
1994 1996
SOURCE: pH REPORT ANALYSIS: AMERICAN CHEMISTRY COUNCIL DATA growth as recently as 2013. Today, however, they are forecasting just 3 % as the actual out-turn for 2016. It is therefore hard to blame companies for committing to major capital expenditure programmes back in the 2011 – 2013 period, based on this optimism.
But now, of course, companies will have to deal with the problems created in the marketplace by these unnecessary expansions. Not only are they unlikely to provide the expected return on investment, but they have also created deflationary pressure on prices, as supply / demand moves further out of balance. By contrast, as chart 3 confirms, the ACC data has been a very reliable guide since
2011, highlighting that the economy has consistently failed to respond as expected by the IMF and other forecasters. Had this data been used as the base case, unnecessary investment would have been discouraged. Even more importantly, policymakers’ wishful thinking would have been challenged much earlier, together with the theory that monetary policy could restore economic growth.
2
1998 2000
2002 2004
2006
2009 – 2016 AVERAGE = 82.1 %
JULY 2016 = 78.7 %
China heads for political turbulence as 19th Congress approaches China’ s economy is reaching a difficult stage as the country enters the critical period ahead of the 19th Party Congress due in
Companies now have to deal with the problems created by over-expansion
2008 2010
2012 2014
2016