11 November 2011 16:47 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--A sobering report from the European Commission on Thursday pointed to the likelihood of some European economies slipping into recession by the end of the year. It also lowered 2012 GDP growth forecasts for the 17-member eurozone to 0.5% from a previously predicted 1.8% and for the EU to 0.6% from 1.9%.
“The outlook for the European economy has taken a turn for the worse,” the Directorate-General for Economic and Financial Affairs said.
“Real GDP growth in the EU is now expected to come to a standstill around the end of this year, turning negative in some Member States. Only after some quarters of zero or close-to-zero GDP growth, a gradual and feeble return of growth is projected in the second half of 2012,” it added
So the EU is heading for recession, a period overshadowed by the eurozone nations’ debt burdens and the inability of politicians to find a solution to the crisis that might be acceptable to all.
Hopes were raised last week that a package of measures to tackle the crisis agreed by eurozone heads of state could be implemented but were subsequently dashed as a modern-day Greek tragedy grabbed global headlines. This week, attention has turned to Italy’s huge debt burden and the dangers of systemic risk to the rest of the eurozone, the EU and the wider world.
Since the 2008-09 global financial crisis many of the parameters that determine our assessment of risk have begun to shift, the Commission believes.
“It will take time before they settle, and collective consensus on a new, more stable risk map will emerge,” it added in its latest European economic forecast.
“In this world of high uncertainty it is not surprising that market sentiment is volatile and confidence is fickle.”
The downside risks even to this latest economic forecast for the EU collectively and the individual member states are high. The engine for growth for the EU economies has well and truly stalled.
The lengthy Commission forecast makes salutary reading. The prospects for all the EU members state economies are uncertain. Growth has slowed markedly. Economic activity is subdued.
Even Germany’s growth has run down a gear, its momentum temporarily halted, the Commission says, by uncertainty.
Investment, consumption and exports are all set to weaken strongly in the fourth quarter of 2011, according to the report. This is bad news for Europe as a whole and for its chemical industry.
Germany’s economy, essentially, is strong but growth slowed markedly in the second quarter and is expected to be weak towards the end of the year.
Industrial production data bode well for the third quarter, the Commission says, but it believes the growth momentum could stall thereafter. The economic environment outside Germany has weakened considerably and German industry relies heavily on exports to the rest of the EU.
Consumer and business confidence has been dampened and is expected to weigh on the economy in the near term.
It is this lack of confidence that something might be done to militate against the consequences of the sovereign debt crisis that has destabilised physical as well as financial markets.
Fears that the eurozone may be torn in two, or collapse entirely, are being aired more publicly. The Commission's president Jose Manuel Barroso on Thursday warned of the implications of a break-up of the eurozone as he called for European unity.
Only slowly trying to fix a crisis that has been called worse than that experienced in the financial markets in 2008-09 does little to inspire confidence. Market participants, down to the end-consumer, have become increasingly risk averse.
Weak consumer confidence will ultimately have an impact on petrochemicals and polymers demand which has already slowed markedly. ICIS reported on Friday the views of a Europe-based producer and a converter of polyethylene and both were concerned about weaker demand growth.
Of great concern, also, has to be the fact that the US economy is expanding only slowly and that unemployment remains high.
Recent indicators suggest that personal income in the US is stagnant and that consumer confidence remains shaky at best, Standard & Poor’s said on Wednesday. “It’s unclear whether Americans will spend enough in the near term to sustain a recovery in the world's biggest economy,” the credit rating agency said.
The University of Michigan's consumer sentiment index improved slightly in September from a 30-year low in August. But consumer confidence fell in October to the lowest level since March 2009. “But indices remain in recessionary territory, over two years into the recovery,” Standard & Poor’s added.
The outlook for petrochemicals demand is grim indeed if two of the three engines for growth in the world economy continue to struggle in this manner. The risk of contagion from the eurozone crisis to the third and arguably the most important driver for chemicals growth, China, also is significant.
($1 = €0.74)
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