Global Economy Loses Suspension

Business, China, Company Strategy, Economics, Europe, US

By John Richardson

ISN’T it interesting how when you talk to someone involved in a petrochemicals project, either publicly or privately, their project is very often sufficiently to the left of the cost curve to gain a winning advantage over competitors?

Discussions are almost entirely about feedstock advantage, production and logistics efficiency and location etc. Thus was the case at the Asia Petrochemical Industry Conference (APIC) in Kuala Lumpur, Malaysia, earlier this month.

Demand over the long term is never seen as a problem.

A reason might be that many executives have forgotten the world before the economic golden era of 1982-2007, or are too young to have experienced anything different. During those years, the global economy was buoyed by the wealth of the Babyboomer generation.

Nobody had to worry about demand during that period as, during brief recessions, it was always lurking in the background, waiting to come roaring back. All that central bankers had to do, as we discuss in our e-book, Boom, Gloom & The New Normal, was to cut interest rates to bring Western economies back to immediate economic health.

A virtuous circle also existed between strong growth in the West and in China. From 2001 onwards, following China’s accession to the World Trade Organisation, the country enjoyed enormous export-focused growth, thanks to strong demand in the West.

Increasing volatility, uncertainty, complexity and ambiguity (VUCA) in the global economy, described by fellow blogger Paul Hodges in an excellent series of posts last week, indicate that this has all changed.

In the past, it was a bit like driving a new car with good suspension. Global growth was so buoyed by demographics that we didn’t as much feel the bumps in the road caused by short-term economic events.

Now the suspension is worn-out, and needs replacing by new routes to growth, and so we notice the bumps a lot more.

Some policymakers realise things have changed – for instance, those in China who are backing economic reform.

But there are no guarantees that when policymakers recognise the challenges, and put a reform programme in place, they will succeed, as China again illustrates.

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