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Doing nothing is not a good option

Economic growth
By Paul Hodges on 27-Oct-2012

The blog was interviewed by ICIS’ Will Beacham on its budget outlook this week. Key points from our discussion were:

On the short-term outlook
“Let’s just say that things are going to be pretty flat. The fourth quarter and first quarter of 2013 are looking pretty flat and that doesn’t give much grounds for optimism. Ethylene rates worldwide are around the 80% level and, to be honest, I think we’ll be lucky to hold onto those until the end of the year.”

On the probability of an L-shaped economic recovery
“A year ago we could still be hopeful that the oil price was going to fall and that would encourage consumption. We could also be hopeful that central bank interventions would lead to a more sustainable kind of recovery. Sadly a year on, oil is at very high levels, heading for a second straight year of record average prices, and stimulus packages simply haven’t achieved their objectives.

“Population demographics drive economic growth, and the ageing population in the west means lower demand there. Older people mostly have the stuff they need and if they want to replace a sofa they can delay a year or two, unlike a young family buying things for the first time. Meanwhile, emerging-region populations will consume more, but not enough to compensate because of their relatively low incomes.”

Two major opportunities for the future:
Companies can still emerge as winners, despite the ongoing economic malaise, if they focus on creating products which will appeal to older western consumers and the nascent emerging markets:

• Almost no-one is making products for the New Old 55+ generation in the West
• Equally, very few companies have woken up to the opportunity to supply affordable products and services to the billions of people who are moving out of poverty in emerging economies”

“For example, Japanese car-maker Nissan is re-launching the Datsun brand as a $3,000 (€2,310) car. Every chemical company selling to the car industry ought to get on a plane to Tokyo and talk to them because that is going to be a raging success.”

Dong nothing is not a good option
“Unfortunately, however, it seems likely that if people wait for the central banks, then they could be waiting until they go bankrupt.”