InterviewEconomy entering 'New Normal' of lower growth - with video

23 May 2011 12:30 [Source: ICIS news]

By Will Beacham

LONDON (ICIS)--The volatility in chemical and oil markets indicates that the global economy is going through a structural change and entering the ‘New Normal’ of lower growth in mature markets, according to a leading consultant.

Speaking before Monday's launch of a free eBook on the New Normal*, co-author Paul Hodges, chairman of UK-based consultancy International eChem, said the volatility is being caused by central banks trying too hard to stimulate economies that should naturally be entering a sustained period of lower growth.

According to Hodges, the post-war baby-boom generation is ageing, and therefore spending less money on big-ticket items such as new cars and bigger homes. The oldest baby boomers are 65 this year and their average age is 53.

But central banks have missed this demographic change and are trying too hard to stimulate economic growth despite the structural fall in demand. "Central banks have reduced interest rates to zero and they’re printing money like mad. In China, they’ve doubled bank lending and then maintained it there for two years. There is major lending going on in the States," he said.

He added: "And what are they trying to do? Stimulate demand from people like myself who don’t want a new car anymore, who don’t need a bigger house because the kids have left home. Demand is just not there. You’ve got liquidity fuelling speculative rallies and this is why we’re seeing volatility. The fundamentals are unsound."

The growth in demand for chemicals and other commodities seen in the first quarter of 2011 may not be based on real demand, but speculative buying based on the fear of continued rising oil prices, Hodges said.

"We are seeing from all around the world that the build-up in demand in the past quarter is pretty fickle. We got a real surge in demand in the first quarter. Is it being sustained in the second quarter? No – buyers are buying hand to mouth. We’ve got stockpiles building up now."

Hodges said conditions are not yet the same as the crash of late 2008 because the oil price has not collapsed.

He advises chemical companies to check stock levels and check with downstream customers, not just with convertors but with retail customers. "Are they doing well or not? All I can see is that life is pretty bad with the end consumer," he said.

"We’ve got quite a big problem here because we’ve had a big run-up in crude, which isn’t justified by supply, demand or inventories," he added.

In the long run, innovative chemical companies can emerge as winners from the New Normal if they are properly prepared, said Hodges. They can create products suitable for the ageing baby-boomer population in the West, and meet the needs of people moving into the first stages of consumption.

He added: "Let’s look at where we really have the skills and competence, such as dealing with clean water supplies, carbon footprint, sustainability. Let’s put our energy into these areas, and companies will be very successful in the future."

*Boom, Gloom and the New Normal: How Western Baby Boomers are changing global chemical demand patterns, again, is co-written by Paul Hodges, chairman of International eChem, and John Richardson, ICIS training Asia director.

Download for free at www.icis.com/NewNormalEbook
See also Paul Hodges’ Chemicals and the Economy blog
Read John Richardson’s Asian Chemical Connections blog
By: Will Beacham
+44 20 8652 3214

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