16 March 2012 16:58 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--Encouraging news this week that leading indicators are signalling a “positive change in momentum” for the Organisation for Economic Co-operation and Development (OECD) economies has to be set against further signs of a slowdown in China.
Stronger indicators in the US and Japan continue to drive the overall position, the OECD said in a regular review, “but stronger, albeit tentative, signals are beginning to emerge within all other major OECD economies and the Europe area as a whole”.
Leading indicators for India and Russia appear to be changing for the positive but those for China and Brazil “continue to point to below-trend growth”.
For multinational chemical producers, the news is both good and bad.
China accounts for such a large proportion of chemical exports that slowing economic and industrial growth could prove to be a major problem.
The country's growth as a chemicals market has been spectacular for suppliers and producers in many segments. But as flattened demand in polyethylene this year has shown, the deceleration has been sudden and, largely, unexpected.
What happens in China has global repercussions in chemicals and significantly slowed near-term growth will not be welcomed in boardrooms worldwide.
China’s GDP growth slowed to 2.0% in the fourth quarter of 2011, OECD statistics show, from 2.3% in the third quarter. Its economy, nevertheless, was expanding at the second-fastest rate among the G20 nations after Indonesia.
G20 growth for the period was just 0.7%, quarter to quarter, from 0.9% in the third quarter, the OECD said in a first-time release of the aggregate data. In 2011, G20 GDP rose by 2.8%, well down on the 5.0% growth seen in 2010.
The momentum for growth in Asia is expected to remain weak for some months, a knock-on effect to some extent from global uncertainty brought about by the eurozone debt crisis. But, also, Thailand’s economy was dealt a blow by the recent floods.
“The major concern in China is the signs of weakening domestic demand, which is manifest, for instance in private housing starts and fixed investments,” the OECD said. India’s growth has also been constrained and the outlook is for further weakness.
The positive news, however, as far as producers and sellers in the west are concerned, is that the indicators appear to be changing direction – in other words pointing up – in Germany France, Italy and the UK. The US economy is already on an upward trend, even though growth is slow, and the Canadian economy appears to be making some headway.
Sentiment, certainly, is improving. Germany's ZEW economic research centre said this week that its monthly investor confidence indicator rose sharply in March from February.
Financial market analysts, it seems, feel that the country is in a better place given relatively strong industrial production earlier in the year and relatively robust business activity overall.
Growth has slowed markedly, of course, and the prospects for sequential growth in the first quarter are poor. But there appears to be increasing confidence in slightly stronger than may have been expected growth in the second half of the year.
European industry is picking up after the slowdown in the fourth quarter.
The latest industrial production figures, for January 2012, show a return to growth from December. Chemicals production grew by 1.8% in January while expansion in the eurozone was 2.7%, according to data from the Eurostat statistics agency.
The year-on-year data, however, show that there is still a lot of ground to make up. EU chemicals production was down 2.1% year on year in January and down 2.3% in the eurozone.
In the US, data are pointing to a slightly stronger recovery and for chemicals, an end to de-stocking. Economic reports have been fairly positive for some time although there always seems to be some data that confound the positive trend.
Chemicals in the US have been recovering and suggesting that the year-end destocking was, in the words of the American Chemistry Council (ACC) “mild and possibly ending”.
Chemicals sales in the US have been rising and inventories falling. The ACC adds, nevertheless, that: “Inventories are still outstripping shipments and the cycle is near where it was at the start of the [2008-09] recession.
That having been said, the data are suggesting that demand growth could strengthen in the months ahead.
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