Budgeting for Austerity – the Challenges

Chemical companies, Consumer demand, Economic growth, Financial Events, Oil markets

New Normal logo.pngThe 2012-14 Budget period offers great opportunities, as well as great challenges.

In the short-term, the challenges may well seem more important.

But they should not blind companies to the fact that the opportunities have probably never been greater.

Of course, it is hard to be very optimistic about the shorter-term outlook for the global economy and chemical demand:

Oil prices are at levels that have always led to recessions in the past

• Western governments are cutting back on spending and raising taxes
• Emerging economies are raising interest rates to contain inflation
Individuals are suffering from squeezed incomes and job insecurity
• Too many people are retiring with inadequate pension provision

The short-term risks are also more weighted to the downside:

• Many people still need to adjust to working in a more turbulent world. The BabyBoomer SuperCycle of demand meant the major economies suffered only 16 months of recession in 25 years between 1982-2007

• Governments have failed to recognise the impact on demand of demographics and the ageing western populations. They have raised debt levels via stimulus programmes for no real gain

• The banking system remains under severe strain:

o It is dramatically undercapitalised in Europe
o USA banks face problems if property prices weaken again
o China’s banks face losses from non-performing loans after the credit bubble of the past 3 years

And then, of course, there are the risks of rising social unrest in many countries as austerity programmes bite. Equally, the current generation of politicians has failed to display any real leadership that would help to move us beyond today’s more difficult times. And, as always, there remain geo-political threats, such as the potential for Middle East wars.

Thus the blog feels there is only one possible title for this year’s Outlook, ‘Budgeting for Austerity, and New Opportunities’. This is because the real question, of course, is what happens next?

As individuals, will we lapse into apathy, and just give up in the face of the perceived difficulties? Or will we do as previous generations did, and confront today’s problems with a view to setting out in a new direction?

The blog will discuss these opportunities in more detail tomorrow.

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