INSIGHT: When the cuts begin to bite

29 June 2010 16:02  [Source: ICIS news]

By Nigel Davis

HOUSTON (ICIS news)--As the G20 nations look for ways to address over-spending while still supporting growth, do manufacturers see opportunities or threats? In so many areas governments impose burdens on business - through tax systems and legislation designed to protect citizens and employees. At the same time they provide support for business development, for research and for new business growth.

But when times are tough, what gives?

The focus in Europe is on ballooned budget deficits, with governments set to implement sharp cutbacks in spending. Those cuts will hit hard many of the services provided for manufacturers. Potentially, they will hit growth.

The prospect of ‘smaller’ government is welcomed by many, but private enterprise is challenged to do more at the individual and sectoral level.

Given the expected scale of the cuts it is clear that a great deal will change. Business support systems will disappear, or be devolved to different agencies. Less government spending is likely to have a negative impact on chemicals demand both directly and indirectly, particularly as infrastructure and other state-funded projects are hit.

A question is whether manufacturing takes up the challenge of doing more.

The situation in Europe is particularly acute and concern surrounds the impact of the scale of the cutbacks. In the US the fear is of more job losses driven by a weak, lacklustre recovery.

Dow Chemical CEO Andrew Liveris put down a challenge last week when, in an editorial in USA Today, he called for an “Advanced Manufacturing Plan” to rejuvenate the economy.

Liveris wants to see a revitalised manufacturing sector create more jobs and growth.

He recommended a focus on infrastructure, research and development, education to enhance manufacturing and science skills, and an alternative energy strategy that encourages efficiency.

“Manufacturing employs nearly 13m people in the US and 6m in related fields,” he said. “No other sector performs more R&D, drives more innovation, exports as much or contributes more to our nation's economy.

“How do we launch a manufacturing renaissance in America that will create meaningful, well-paying jobs and win in global competition?”

In different ways, that question is being asked worldwide. How do manufacturers stay competitive and flourish in times of great change? Opportunities will be grasped by the fit and able - and those not hide-bound by overbearing legislation. However, the over-arching threats at this phase in the recovery are of deflation and rising protectionism.

The move from stimulus to fiscal prudence opens up the fault lines in national economies. The impact will be felt for years to come.

Bookmark Paul Hodges’ Chemicals & the Economy blog
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By: Nigel Davis
+44 20 8652 3214



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