IMF warns on recession risk as Political, Social worries rise

Economic growth

SHARE THIS STORY

Triangle large.pngWhen the economy is running well, most people tend to get on with their lives. That was the case during the 1982-2007 SuperCycle, when growth was almost constant. But today’s greater economic uncertainties translate into a growing role for Political and Social factors, as the triangle above describes:

• In the West, politics is becoming much more important. What will happen over the ‘fiscal cliff’ in the US, or the Eurozone? Nobody knows, but the decisions will not be made on solely economic factors
• The Middle East has some of the youngest populations in the world. This social factor is a key driver for the Arab Spring, as young people go on the streets to demand jobs
• In China, economics has never been the main factor. The Communist Party has instead carefully balanced social and political factors since Deng’s 1992 Southern tour, and the new leadership will continue this policy

This makes forecasting a lot more difficult. No longer can companies simply decide that polyethylene demand, for example, will be 1x or 1.2x GDP, and then simply use a GDP forecast from the IMF to finalise a forecast. As fellow-blogger John Richardson notes, the removal of economics as the key driver is the equivalent of removing the suspension from a car.

Not only will the journey become much more bumpy, but the end-result will be much more uncertain. As the IMF themselves now warn:

“There is a 1 in 6 chance of global growth falling below 2%, which would be consistent with a recession in advanced economies and low growth in emerging market and developing economies. Ultimately, however, the forecast rests on critical policy action in the euro area and the United States, and it is very difficult to estimate the probability that this action will occur.”

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, purple, down 20%. “Producers were unwilling to lower prices to make material more competitive with global pricing”
PTA China, red, down 18%. “The spread between PTA spot prices and PX costs narrowed to below $60/tonne since early October, which is too low to cover variable costs of $120-150/tonne for most PTA producers”
Naphtha Europe, brown, down 15%. “Oversupply now building in the European naphtha market”
Brent crude oil, blue, down 13%
Benzene NWE, green, up 2%. “Tighter availability of feedstock pyrolysis gasoline (pygas).”
S&P 500 stock market index, pink, up 1%

PREVIOUS POST

UK housing markets approach their Minsky Moment

10/11/2012

The UK housing market has led a charmed life in recent years. Unlike the US, Spa...

Learn more
NEXT POST

Oil markets have lost their price discovery role

13/11/2012

The US spent $6bn on its presidential and congressional elections this year. Apa...

Learn more
More posts
Contingency planning is essential in 2020 as “synchronised slowdown” continues
12/01/2020

The IMF has now confirmed that the world economy has moved into the synchronised slowdown that I for...

Read
Boris Johnson will have to disappoint someone in 2020 as the UK finally leaves the EU
15/12/2019

Finally, after three and a half years, the UK has reached “the end of the beginning” wit...

Read
ACS Chemistry & the Economy webinar on Thursday
10/12/2019

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

Read
What’s next for Brexit and chemicals?
04/12/2019

The UK is about to go to the polls again to try and decide the Brexit issue.  Chemicals will be one...

Read
Global economy hits stall speed, whilst US S&P 500 sets new records
01/12/2019

Whisper it not to your friends in financial markets, but the global economy is moving into recession...

Read
Budgeting for paradigm shifts and a debt crisis
27/10/2019

It is now 8 years since John Richardson and I published our 10-year forecast for 2021 in Boom, Gloom...

Read
Paradigm shifts create Winners and Losers
20/10/2019

MY ANNUAL BUDGET OUTLOOK WILL BE PUBLISHED NEXT WEEK Next week, I will publish my annual Budget Outl...

Read
Markets face major paradigm shifts as recession approaches
06/10/2019

Major paradigm shifts are occurring in the global economy, as I describe in a new analysis for ICIS ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more