Whisper it softly, so as not to alarm the CEO. But the world is starting to look worryingly like the picture of mid-2008.
Official bodies such as the IMF are always cautious in forecasting a downturn. They rightly worry that they could help to cause the decline, by hitting confidence. But there comes a moment when saying nothing becomes the bigger risk.
This is what happened back in April 2008. As the blog noted then, the IMF threw caution to the wind and warned:
“It is now clear that the current turmoil is more than simply a liquidity event, reflecting deep-seated balance sheet fragilities, which means its effects are likely to be broader, deeper, and more protracted”.
Now, its new managing director, Christine Lagarde, has gone much further. She warned on Thursday that the global economy faces the prospect of:
“Protectionism, isolationism and what happened in the 1930s (the Great Depression). There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies that will be immune to the crisis we see not only unfolding but escalating.”
This, of course, has been the blog’s concern for some time. As always, petchems have been a leading indicator for the global economy. So far, oil prices and the major financial markets have ignored their trend. But this may not last forever.
In some ways, therefore, it is a hopeful sign that the IMF has spoken out. Lagarde may be able to burst the bubble of complacency that seems to surround most of the major governments. But equally, it also emphasises once again the very real risks facing the global economy in 2012.
ICIS pricing comments this week, and price movements for the benchmark products since the launch of the IeC Downturn Monitor on 29 April are below:
Naphtha Europe (brown dash), down 23%. “The market has tightened slightly from the previous week.”
HDPE USA export (purple), down 22%. “Globally, buying sentiment was weak, with China, Vietnam and SEA buyers not wanting to build inventories ahead of the Lunar New Year holiday.”
Benzene NWE (green), down 21%. “Renewed downstream styrene production pulled material and kept supply levels balanced to tight”.
PTA China (red), down 19%. “Demand dropped as textile factories have stocked up enough inventories in the past two weeks to cover their requirement for the rest of the year.”
Brent crude oil (blue dash), down 16%
S&P 500 Index (pink dot), down 11%
NOTE: This will be the last Downturn Monitor in 2011, due to the Christmas and New Year period. It will resume on 9 January.