2011 Budgets

Crystal ball.jpgThe blog will publish its annual Budget Outlook for 2011 next weekend. And so as usual, its now time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of the best that we have.

The 2010 Outlook was titled ‘Budgeting for a New Normal’, and it argued that over the next few years:

We will start to see a rebalancing of the global economy. The West will see lower consumption, as people rebuild their savings, and borrow less. In turn, this will mean lower export demand for the emerging economies. The outcome will be a more sustainable world economy, but it will be a difficult journey.”

Today, this still seems to be an accurate view, particularly the sense that it will be a “difficult journey“.

The blog’s 2008 Outlook ‘Budgeting for a Downturn’, and its 2009 ‘Budgeting for Survival’, meant it was one of the few to forecast the Crisis. Last year, however, the blog was more positive about the outlook than most forecasters, expecting that “2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP“.

It also correctly balanced this optimism by warning that there would be no “quick V-shaped return to the 2003-7 Boom years“, and suggesting that:

Governments will worry about budget deficits, and may well scale down support for critical end-uses such as autos and housing. Equally, major amounts of new capacity, planned during the Boom years, will start to come onstream in the Middle East and Asia.”

This led it to fear that “unemployment is set to become a key political issue in the West”. Unfortunately, this has also been proved correct. So have its concerns that the expected recovery in demand would put “great strains on cash-flow“, and that speculative bets on “oil prices linked to traders’ bets on the US$’s value will continue“.

However, although it identified this latter factor, it clearly underestimated its likely longevity, with oil so far averaging around $75/bbl versus its suggestion that “$50/bbl might be an average price“. The blog will keep this lesson in mind when posting its Outlook next weekend.

The blog’s aim is to ‘share ideas about the influences that may shape the chemical industry over the next 12 – 18 months’. It hopes that its 2010 Outlook again helped readers to better prepare for today’s more difficult economy.

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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2 Responses to 2011 Budgets

  1. Pierpaolo Ferluga 18 October, 2010 at 10:57 am #

    Hi Paul…I look forward to read your budget 2011.
    but let me comment that I noticed you were quite negative on economy growth some weeks ago…
    have you changed your mind or started to think less negative?
    as a matter of fact Chemical industry is booming and commodity looks quite strong both in quotation and profit margin.
    will it last like that for long??
    will 2011 be a new 2008 or a new 2010??
    West countries car industry starts to drop again.
    could china drive the all global upswing??

    my best regards

    Pierpaolo

  2. Paul Hodges 18 October, 2010 at 2:38 pm #

    Pierpaolo

    Many thanks for your comment.

    I am still quite negative on economic growth, with the end of the global stimulus programmes and the prospects for ‘currency wars’ and increased protectionism.

    The issue in my mind, however, is how far will the US Federal Reserve go in pushing inflation into the system? I will be posting on this tomorrow. If they, representing 25% of the global economy, decide to simply print money and create more ‘bubbles’ in financial markets, as they did before in housing, then this would ahve a very stimulative impact on demand in the short-term. The longer-term impact might not be much fun, though.

    Paul

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