2013 Budgets face many risks

Crystal ball.jpgThere are many ways to lead a company to disaster. But one of the most reliable is to follow conventional wisdom. The reason is that this is almost always backward-looking, and tells us little about likely future developments.

The blog instead aims to help its readers to be successful and stay in business. So for the past 5 years, it has produced its own Budget Outlook at this time of year. The aim has been to challenge conventional wisdom, where this seems likely to encourage companies to take a wrong turn:

• The blog’s 2007 Outlook ‘Budgeting for a Downturn‘, and its 2008 ‘Budgeting for Survival’, meant it was one of the few to forecast the 2008 Crisis.
• 2009′s ‘Budgeting for a New Normal’ was then more positive than the consensus, suggesting “2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP“.
• The 2010 Outlook was titled ‘Budgeting for Uncertainty’. This introduced the concept of Scenario planning, to help deal with “today’s increasingly uncertain New Normal environment.

Next week, as usual, the blog will publish its new Budget Outlook.

But first, as always, it is helpful to look back at last year’s forecast. This was titled ‘Budgeting for Austerity’ and focused on what it saw as the challenges and the opportunities for the 2012-14 Budget period. It suggested:

• Oil prices were at levels that would lead to recession. Western governments were making things worse by cutting spending and raising taxes – a point now accepted by the IMF. Emerging economies were doing the same by raising interest rates to combat inflation
• Equally, the banking system remained under severe strain in Europe, China and the USA
• The risks of social unrest were also rising; geo-political threats remained very real, especially in the Middle East
• Policy makers were failing to demonstrate real leadership in the face of the challenges ahead

As a result, the blog saw ‘individuals suffering from squeezed incomes and job insecurity’, which would have negative implications for demand growth

Today, the blog is happy to stand by all these judgements. Equally, though, it argued that:

The greatest opportunities come at the time of greatest challenges. Two vast, and virtually unserved markets are now opening up. And they will continue to grow, no matter what happens in financial markets.

“In 2015, for the first time ever, there will be 300m Western BabyBoomers (those born between 1946-70) in the 55+ age group. They will have money to spend, and an extra decade of life expectancy ahead of them, compared to earlier generations.

“Separately, hundreds of millions of people in the emerging economies will be moving out of poverty. They will have small amounts of money to spend for the first time. They will want to spend it on critical needs, and in a sustainable fashion.

“The chemical industry is key to ensuring that the needs of these two growth markets are met. These are the great opportunities of the New Normal”.

These 2 opportunities formed, of course, the great theme of the second half of ‘Boom, Gloom and the New Normal’, when it was published this year. Most encouragingly, the blog is now working with a number of major companies at Board level to investigate them in more detail.

It would welcome the chance to work with other far-sighted business managers, who are also distrustful of consensus forecasts, and keen to ensure the future prosperity of their business.

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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