Europe in “10-year stagnation period, just like the Japanese”

Economic growth

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L shape.pngThe blog today tips its hat to Borealis CEO Mark Garrett, who becomes the first major company boss to publicly accept that Europe is following Japan into a prolonged period of economic slowdown. He told ICIS news:

“I believe Europe has entered a 10-year stagnation period, just like the Japanese have suffered, and we can’t expect [Mario] Draghi at the European Central Bank to fly in like Superman and rescue all of the politicians who aren’t prepared to make any fiscal or structural changes to the economy. The impact of each additional monetary measure is that each time Mario Draghi prints more money, the bang for his buck goes down, so until we get to a situation where we’re prepared to make the fiscal and structural changes, that will continue”.

This is very similar to the argument of our new book, ‘Boom, Gloom and the New Normal’.

The book goes on to argue that the world is seeing an L-shaped economic recovery, due to the ageing of the Western BabyBoomers. Stimulus programmes such as those introduced by the European Central Bank and the US Federal Reserve actually make the economy worse, not better, because they drive up asset prices for oil and other commodities.

Instead, as the slide above from the blog’s recent Berlin conference presentation argues:

• The only growth sector in the Western population is the New Old 55+ generation. They already have most of what they need, and so spend less as they only purchase replacement products
• Emerging economies now have to restructure away from exports towards their domestic markets. Their growth will also be much slower, as incomes are 10% of those in the West
• The 2 great growth markets of the next 20 years will therefore be the New Old 55+ in the West, and the billions who have escaped from absolute poverty in emerging economies

Companies need to urgently review their strategies to develop products and service that will be attractive to these new markets. Those who wait for central bank stimulus to work are likely to find themselves waiting until they are bankrupt.

The chart shows benchmark price movements since the IeC Downturn Monitor’s 29 April 2011 launch, with latest ICIS pricing comments below:
HDPE USA export, down 22%. “Global demand is weak”
PTA China, down 18%. “Buying interest from downstream textile factories remains weak, as most of them prefer to buy on a need-to basis, given the poor macroeconomic environment and tightening cash flow nearing the end of the year”
Naphtha Europe, down 17%. “Buying is being conducted on a hand-to-mouth basis and lower naphtha prices will not boost demand”
Brent crude oil, down 13%
Benzene NWE, up 1%. “Softer derivative demand from key end-use sectors”
S&P 500 stock market index, flat

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