German Chancellor Merkel’s recent comment that “I don’t see anything which signals a recession in Germany” is just one sign of the current complacency about the global economy within the Western political elite.
Long-standing readers will remember Profs Eichengreen and O’Rourke 2009-10 work comparing today’s Great Recession with the Depression of the 1930s. Worryingly, the parallels seem to be increasing again, as the chart above shows from new research by Prof Nouriel Roubini:
“World trade (dark grey line) has stalled since the onset of the year and is falling in line with lower growth in the developed world. While global industrial production increased slightly in June, it is still down on the quarter. July data, coupled with leading indicators such as PMIs (Purchase Manager Indices), points to Q3 weakness. Chinese commodity demand began to weaken in Q2 and continued to fall in July.”
JACKSON HOLE MEETING OF ECONOMIC POLICYMAKERS
There was less complacency amongst economic policymakers at the US Federal Reserve’s annual Jackson Hole meeting last week. There was no mention of a new QE3 programme to try and boost stock and commodity prices. Instead, as the OECD’s head noted, policymakers are now realising that “this consolidation effort is going to take a generation.”
Fed Chairman Ben Bernanke warned that “The quality of economic policy-making in the United States will heavily influence the nation’s long-term prospects”. Whilst Christine Lagarde, new IMF head, said economic risks “have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed.”
Policymakers, if not yet the politicans, may therefore be finallly realising that we face a solvency crisis, not one of liquidity:
• Solvency is whether one is able to pay one’s total debts
• Liquidity is simply whether one can pay today’s bills
The risk is, of course, that 2 years of implementing the wrong policies have left them dangerously short of time, and money. With actual US GDP growth just 0.33% ($40bn) in H1, there is surely a strong risk that the US is now entering a new recession. Europe cannot be in much better shape, despite the politicians’ denials, given Q2 data.
IeC DOWNTURN ALERT UPDATE
Hopefully the blog’s April launch of its IeC Downturn Alert launch has enabled chemical companies to prepare robust contingency plans for what may lie ahead. Price movements since April, and ICIS pricing comments this week are below:
S&P 500 Index (pink dot), down 14%.
Naphtha Europe (brown dash), down 13%. “Most sources still believe an oversupply threatens in September “.
Brent crude oil, down 12%.
HDPE USA export (purple), down 13%. “Latin America has now turned its attention to Asian offers”.
Benzene NWE (green), down 11%. “Shutdowns downstream are expected to soften demand next month.”
PTA China (red), down 5%. “Expected to be underpinned by rising PX prices caused by limited supply”.