2016: Trade Tensions, Social Unrest And Deflation

Business, China, Company Strategy, Economics, Environment

By John Richardson

THE world by 2020 – as Paul Hodges and I discussed in Chapter 4 of our 2011 book, Boom Gloom & The New Normal – is going to look very different indeed from Ferguson_Day_6,_Picture_44what most of us expected:

  • A major shake-out will have occurred in Western consumer markets.
  • Consumers will look for value-for-money and sustainable solutions.
  • Young and old will focus on ‘needs’ rather than ‘wants’.
  • Housing will no longer be seen as an investment.
  • Investors will focus on ‘return of capital’ rather than ‘return on capital’.
  • The term ‘middle-class’ when used in emerging economies will be recognised as having no relevance to Western income levels.
  • Trade patterns and markets will have become more regional.
  • Western countries will have increased the retirement age beyond 65 to reduce unsustainable pension liabilities.
  • Taxation will have been increased to tackle the public debt issue.
  • Social unrest will have become a more regular part of the landscape.

Last year saw rapid movement towards these ten predictions as the unwinding of economic stimulus in China gathered pace – and as an important study by the Pew Research Centre underlined our long-held argument that it is just plain silly to take about the rise of a middle class in the emerging world on the lines of that which exists in the West.

2015 also saw continued stagnation in Western economies as you cannot print babies. No amount of Fed and European Central Bank can compensate for the retirement of the biggest and richest middle class generation in the human history.

In 1946-1970 the average number of G7 babies being born each year rose by 15% per annum compared with the 1921-1945 period. This was equivalent to 33m extra babies, or more than twice the population of Canada in 1950, the smallest of the G7 members. In the US, there was a huge 48% increase in births during the peak years of its baby boom in 1946-64, when this period is again measured against 1921-1945.

But one billion people will leave the Wealth Creator 25—54 age group and join the 55+ generation in 2000 – 2030 due to a 50% increase in global life expectancy since 1950. Global fertility rates have also halved over the same period: many of the wealthier economies have been below re-placement level of 2.1 babies/woman since 1970. This combination means we have growing numbers of people in the low-earning, low-spending 55+ generation, and relatively few in the higher-earning and higher-spending 25 – 54 generation, which has historically driven wealth creation.

What will this year bring? Here is how I see developments in three of our 2020 predictions.

Trade patterns and markets will have become more regional

I believe we are entering the next phase of the Great Unwinding when international trade tensions will accelerate as chemicals markets move towards becoming much more regional. As economic growth continues to stagnate, “looking after our own” will become an even bigger political priority. China is the big risk here. It has vast manufacturing surpluses that it wants to export in order to boost short term GDP growth as its economic reforms accelerate.

We forecast back in 2011 that demagogues everywhere would increasingly use “looking after own” as a vote-winning slogan. This was of course based on history, particularly the 20th century history of Europe. We were absolutely right. This slogan looks set to encompass even more negative sentiment towards immigration during 2016, along with trade protection policies. 

Social unrest will have become a more regular part of the landscape

2016 will also see more social unrest because of the continued failure of politicians, whether they are just demagogues or more decent than that, to recognise that the retirement of the Babyboomers and the withdrawal of China stimulus are the roots of everything.

Most of us in the West have known nothing but the economic Supercycle, when the Babyboomers were at the peak of their spending power. The long term decline in living standards will thus generate a lot more anger.

Consumers will look for value-for-money and sustainable solutions

Incomes will continue to stagnate in the West, making affordability critically important. It will also become more and more obvious that it is affordability rather than the mythical “rise of the middle classes” that will thus drive growth in the emerging world. Consumers everywhere will thus increasingly want value for money in everything they buy. And the Paris COP21 agreement underlines our long-held argument that sustainability must also be a key element of today’s product offerings. Combine these affordability pressures with the oversupply left over from the failure to foresee these major shifts in the global economy and the end result is more deflation in 2016.

There is no getting away from the fact that 2016 is going to be a very, very difficult year, and of course there is nothing that most of us can do about the political decisions behind these difficulties. But the road map to future success for the chemicals industry has already been printed and distributed.


The Opportunities For 2016 And Beyond Are Huge


A happy festive season and all the best for the New Year to my readers. What sho...

Learn more

Oil Prices 80% Likely Not To Return To Previous Levels


By John Richardson In yesterday’s world the ongoing geopolitical tensions betw...

Learn more
More posts
What global petchems demand would have been like without the China property bubble warns us about the future

By John Richardson PLAYING “What if?” games by changing the course of history is popular amongst...

Whether Beijing blinks over Evergrande is the biggest issue for global petchems

By John Richardson WILL BEIJING blink? The answer to this question could pretty much set the directi...

The perils of Evergrande for China and world polyolefins demand

By John Richardson ON THE PLUS side of the H2 China polyolefins demand ledger are the Golden Week Ho...

China PP arbitrage to the US goes through the roof despite surging freight costs

By John Richardson IT IS VERY HARD to see how we will get out of this container crisis anytime soon....

Latest data show China could become PP net exporter by 2026 and net exporter of 3.7m tonnes in 2031

By John Richardson DO YOU WANT the good news or bad news first? This is of course a rhetorical quest...

China HDPE self-sufficiency risks increase as more new capacity is announced

By John Richardson THE ABOVE chart on the  left might not happen, of course. China could remain a h...

Asia and Middle East PP producers need to be more global because markets are more regional!

By John Richardson NORTHEAST ASIAN (NEA) polypropylene (PP) producers are finding it increasingly di...

Global LLDPE demand in 2021-2025 faces major downward pressure from developing world crisis

By John Richardson IT USED TO BE the case that petrochemicals demand could be considered as a global...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more