Germany chem industry is prepared for recession – VCI economist

14 October 2011 18:50  [Source: ICIS news]

LONDON (ICIS)--German chemical firms are studying “scenarios for a recession” in order to be prepared should the economy decline in the wake of the ongoing financial market turbulence, an economist said on Friday.

Germany’s chemical industry would be prepared” should a recession occur, Henrik Meincke, chief economist at Frankfurt-based chemical trade group VCI, said in a media briefing. VCI provided a transcript of Meincke’s remarks.

Uncertainty is prompting many customers in the chemical sector to keep inventories low, Meincke said. Others are anticipating lower raw material prices and are therefore curbing their orders, he said.

However, Meincke said that a slowdown in demand is not a surprise as such, given that it comes after the strong and rapid recovery from the 2008/2009 crisis.

In fact, most in the industry have so far seen hardly any “concrete signs” of an economic collapse and are still assessing their business situation as “positive”, Meincke said. In parts of the industry, capacities remain constrained and key raw materials are tight, he added.

As for the eurozone debt crisis and the euro, Meincke said the common currency is a “success story” for the continent.

The single European market with a common currency brought significant growth and wealth – to the benefit of Germany’s many industrial producers, he said.

Meincke added that the euro is a stable global currency that will not be brought down if a relatively small eurozone member, such as Greece, should exit the common currency.

As for Greece, Meincke said the country’s insolvency is “not just conceivable, but likely”.

Even before the current crisis, Greece’s debts were much higher than the 60% of GDP stipulated under the EU Masstricht treaty on the common currency.

In the past three years, Greece’s debts soared to 160% of GDP. To reduce its debts to “normal levels”, Greece would need to save hard over the next 20 years and reform its economy thoroughly.

“In view of Greece’s administrative governance and the protests against savings measures, it is doubtful that this [large debt reduction] can succeed,” he added.

Meincke said that Germany also has high debt levels and as such needs to save and consolidate government budgets.

While Europe’s largest economy currently benefits from “extremely low” interest rates, at some point rates would be raised in order to stem inflation fears.

“That is reason enough [for Germany] to push ahead in consolidating budgets,” he said.

Read Paul Hodges’ Chemicals and the Economy Blog


By: Stefan Baumgarten
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