IMF expects low growth, high inflation

The IMF now sees a 25% chance of a world recession this year, in which global growth would fall below 3%. Its base forecast is just 3.7%, compared to 5.2% before the credit crunch began. Sales growth for most chemicals is tied to GDP growth, so companies should expect volumes to come under pressure as global growth slows.
Last September, Rodrigo Rato, then head of the IMF,was one of the first central bankers to acknowledge that there was ‘a serious crisis’ and that ‘systemically important banks may face constraints in extending credit.’ This forecast has since proved totally correct. Not only has Bear Stearns been bailed out in the US, but today HSBC, one of the world’s largest banks, has announced it can no longer offer home mortgages to new UK customers.

Now the IMF says that the US is facing ‘the largest financial crisis since the Great Depression’. It expects only 0.5% GDP growth in the US this year, and just 0.6% in 2009. Europe is also slowing, with growth expected to be 1.3% this year. Japan will only grow 1.4%, and China is expected to slip to 9.3%. It also expects further US$ devaluation, commenting that the US$ remains ‘strong relative to fundamentals’.

In addition, policy makers see inflation remaining too high for comfort in energy and food. Both the Asian Development Bank and the World Bank have warned this week that Asian central banks will need to ‘purse policies to quell inflation rather than spur economic growth’. Against this background, chemical companies need to develop contingency plans that will enable them to cope with the difficult times that may lie ahead.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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