Commentary: chemicals mirror economy

Global chemical industry operating rates are a powerful, real-time tool to show the health of the economy, new analysis suggests. A comparison of International Monetary Fund (IMF) GDP data against the American Chemistry Council’s (ACC) index of chemical capacity utilisation (CU) rates going back to 1988 shows a close correlation between the two.

In its latest pH Report, consultants at International eChem said that the use of this chemicals data – rather than IMF figures which are often subject to major revision – would give planners a much more accurate view of the economy. IMF forecasts for global GDP growth have been consistently overly optimistic for many years, warn the consultants. Chemical industry boards have then based their growth strategies on inflated figures, which led to the over-capacity and supply glut we see today in some value chains. The situation is likely to get worse when the new waves of US shale-based capacity come onstream, together with big Middle East projects like Sadara and Petro Rabigh II, plus a lot of Chinese plants from this year into 2017-2018.

The pH Report authors argue that many forecasters, including those at the IMF, ignore the impact of demographics on economic growth. Populations in mature and even emerging economies are aging as birth rates fall and life expectancy increases. Older people earn and consume less than those in the “wealth creator” 25-54 generation. As the proportion of the elderly increases, this has a significant drag on demand. The consultants believe that this demographic trend has been one of the most important causes of the economic stagnation the world’s economy has endured since the 2008 financial crisis.

Attempts by governments to pump up growth through quantitative easing do not have much chance of success in the long term. To date, economists have been disappointed by their impact, especially in Japan and Europe where the European Central Bank has pumped hundreds of billions of euros into the economy with little effect.

The report also suggests the US automotive sector could be in line for at least a 30% cyclical decline in sales. It argues that car ownership may decline as US consumers choose car sharing schemes instead. Meanwhile, a “rush to the suburbs” by the Baby Boomer generation is now petering out, further reducing the need for car ownership.