Scenarios Oct10.pngWhen elephants fight, those around them need to be cautious. And this is the prospect for 2011-13, as the Western countries try to force the BRICs (Brazil, Russia, India and China) to export less and import more, the so-called ‘rebalancing’ strategy.

Thus Budgeting for Uncertainty seems the right title for the blog’s annual Outlook for the chemical industry.

Key factors that will contribute to this uncertainty include:

The USA is aiming to rebalance the world economy by forcing the BRICs to reduce exports and instead focus on expanding domestic demand. This proposed rebalancing represents a major change from the past 20 years of export-driven development by the emerging economies, and will not be achieved overnight.

Europe is making a 180 degree shift in policy, by abandoning previous efforts to stimulate its economy. It is instead planning to achieve budget balances by reducing spending and increasing taxes. Elephants.pngIt is also lining up alongside the USA in hoping to increase its exports to the BRICs, whilst reducing imports from them.

The BRICs themselves are between a rock and a hard place. They were not the cause of the financial Crisis, but they are the ones on whom the major burden of adjustment may fall. The principal instrument of change will be the exchange rate, as the West aims to force China and others to revalue their currencies quite sharply.

These macro factors clearly raise more questions than answers. Even the issue of timescale is unclear, with the US suggesting it might take a full Budget cycle of at least 3 years for real changes to be observed. Plus, of course, there is absolutely no guarantee that the West will get its way, or that the whole exercise may not end in tears.

On the other hand, everything might go extremely well, with a renewed burst of co-operation as seen immediately after the Lehman collapse in Q4 2008. If the G20 Group of the major economies really worked together, then chemical demand could easily be stronger, rather than weaker.

The blog’s view is that Scenario planning is the only solution when faced with so many different variables. The idea is to establish a Base Case, and then develop Upside and Downside Cases which are reasonable projections of what might happen if everything went very well, or very badly.

The blog’s own effort to help kick-start this process is shown above:

BASE Case. This suggests we will see global GDP growth of 3%, with oil staying in the $60 – $80/bbl range of the past 18 months. We will still see financial market volatility, but no major collapses. It is the classic ‘muddle through’ type of Scenario.

UPSIDE Case. This assumes that the G20 achieves a ‘grand bargain’ to rebalance the world economy, allowing GDP to grow at above 3.5%. Inflation would probably become a major issue under this Scenario, causing oil prices to move above $80/bbl. Elephants.png

DOWNSIDE Case. Instead of increased international co-operation, countries put their own interests first and adopt beggar-my-neighbour policies. GDP growth would probably fall to 2.5%, and the oil price below $60/bbl, with the banking system under major strain as Deflation took hold.

The slide also suggests a number of ‘Jokers’ that companies may want to consider. These include changing demographics, such as the ageing of the Western baby-boomers. And, of course, one can never ignore the potential impact of geo-political events, such as a bombing of Iran’s nuclear plants, or new tensions with N Korea.

Of course, it would be possible to simply adopt a Base Case Scenario, and assume that this will work out. But the chances of this occurring are probably less than 50%, so it would be highly risky. Instead, the blog would strongly recommend businesses to adopt a version of the above framework, using their own ideas for Base, Upside and Downside Scenarios.

By adopting this process, businesses can then test out key assumptions in advance. They can also develop mitigation strategies, in case events begin to diverge from the Base Case view. As always, the blog will be very happy to advise on the process, if this would be helpful.

2010 has been a suprisingly good year for many companies. We can certainly hope that current performance will continue, but hope is not a strategy.

Scenario planning will give businesses the chance to adopt the wisdom of the Scouting movement. Its motto, ‘Be Prepared’, seems the best possible approach in today’s increasingly uncertain New Normal environment.



Bank of England endorses New Normal


When elephants fight, those around them need to be cautious. And this is the pro...

Learn more

Global Operating Rates at 2003 levels


When elephants fight, those around them need to be cautious. And this is the pro...

Learn more
More posts
$60bn opportunity opens up for plastics industry as need to eliminate single-use packaging grows

150 businesses representing over 20% of the global plastic packaging market have now agreed to start...

Ageing Perennials set to negate central bank stimulus as recession approaches

The world’s best leading indicator for the global economy is still firmly signalling recession...

Déjà vu all over again for oil markets as recession risks rise

Back in 2015, veteran Saudi Oil Minister Ali  Naimi was very clear about Saudi’s need to adop...

BASF prepares its UK supply chain for Brexit

BASF has been working with Ready for Brexit (the online platform I co-founded last year) as part of ...

Companies and investors have just 30 working days left to prepare for a No Deal Brexit

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the...

The BoE’s pre-emptive strike is not without risk

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to ...

IKEA heads into the circular world with furniture subscription trial

“Once upon a time, Granny and Grandad used to go to a large shop on the motorway to buy their ...

Fed’s magic money tree hopes to overcome smartphone sales downturn and global recession risk

Last November, I wrote one of my “most-read posts”, titled Global smartphone recession ...


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