3 major risks for 2011

Baltic Dec10.pngThere seems to be gathering concern in Germany about the outlook for 2011. This is very significant, as the economy has done well this year, and business confidence is at record levels.

Bosch CEO, Franz Fehrenbach, who runs the world’s largest auto parts supplier, has warned that “the rebound in commodity prices will put intense strain on European industrial companies“.

Equally, the highly respected IFO Institute says that “world economic activity has lost momentum since the spring“. It expects “the dynamics to weaken“, and forecasts global GDP will slow from 4.7% this year to 3.6% in 2011, and Eurozone growth to weaken from 1.7% to 1.4%. It also highlights 3 major risks:

• The current Eurozone funding crisis is a “special risk for the forecast
• A further risk is “another clear correction of US real-estate prices
• It also worries about the outlook “for the Chinese real estate market

Of course, forecasters are paid to be cautious. But one of the blog’s favourite indicators, the Baltic Dry Index (which reflects global demand for bulk shipping of coal, iron ore and grains) is also flashing warning signals.

As the chart above shows, it fell very sharply in June/July, before recovering slightly in Q3. But since then, it has been falling back towards its earlier lows. This is particularly worrying, as Q4 is usually a seasonally strong period.

A year ago, the blog was correctly much more optimistic than the consensus about the prospects for 2010. Now, however, as we look forward to 2011, it can only repeat its comment from December 2007, that:

the need for chemical companies to develop robust contingency plans, in case the consensus is wrong, is looking ever stronger“.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. 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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