The blog will publish its fifth annual Budget Outlook next weekend. As usual, it is therefore time to review last year’s Outlook. Past performance may not be a perfect guide to future outcomes. But it is one of the best that we have.
2010’s ‘Budgeting for a New Normal’ was then more positive than most forecasts, suggesting “2010 should be a better year for the chemical industry, as demand grows in line with a recovery in global GDP”.
The 2011 Outlook was titled ‘Budgeting for Uncertainty’. This argued “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.”
It described its Base Case as being “the classic ‘muddle through’ Scenario”. This suggested we might see 3% global GDP growth, oil in the $60-$80/bbl range and continued financial market volatility. It was broadly similar to the consensus chemical company forecast.
But the blog then suggested that companies should also consider an Upside Scenario based on global GDP growth of >3.5%, “causing oil prices to rise above $80/bbl” and inflation to become a major issue.
It also suggested that plans should be tested against a Downside Scenario, where countries instead “put their own interests first and adopted beggar-my-neighbour policies”. It suggested this could cause “the banking system to come under major strain”.
It looks as though 2011 will see all 3 Scenarios occur at different times.
Equally, the blog’s concern in the Outlook about the potential for ‘currency wars’ has proved well-founded:
• The US QE2 stimulus programme did force China and the other BRICs to allow their currencies to rise, and supported US export growth
• But as the blog warned, “when elephants fight, those around them need to be cautious”. And we have seen increasingly violent swings in major currency values in recent months
The blog’s aim is to ‘share ideas about the influences that may shape the chemical industry over the next 12 – 18 months’. It hopes that its 2011 Outlook again helped readers to better prepare for today’s increasingly difficult economy.
Its underlying viewpoint remains the same as in 2010’s ‘Budgeting for a New Normal’ when it forecast that:
“We will start to see a rebalancing of the global economy. The West will see lower consumption, as people rebuild their savings, and borrow less. In turn, this will mean lower export demand for the emerging economies. The outcome will be a more sustainable world economy, but it will be a difficult journey.”