The Cycle of Deflation continues to develop

Economic growth


Deflation.pngIn January, the blog suggested that political issues would continue to gain increased importance. Its argument was that the strong economy between 1982-2007, when the US suffered just 16 months of recession, meant political and social issues took a back seat. Money was easily available to ‘solve’ most problems.

Since then the global economy has continued with its L-shaped recovery, despite the best efforts of policymakers. And political leadership is now more inward-looking, as voters become more worried by more difficult economic conditions. The main elections during 2012 have confirmed this lack of a consistent vision for the global economy:

• The US remained deeply polarised, with politicians still arguing over the ‘fiscal cliff’
• China has announced new leaders, who will perhaps push the reform agenda harder
• Japan’s new government, however, seems set to return to the failed ways of stimulus spending
• France’s new Socialist leadership are rolling back even Sarkozy’s small reforms
• Russia elected Putin who is strongly committed to a state-driven economy
• Italy appointed Monti as a technocrat leader, but he has now lost his parliamentary majority

Overall, politicians have continued to rely on more and more short-termist measures, and an escalation of competitive devaluations. We are moving back to the world of ‘beggar-my-neighbour’ as the Governor of the Bank of England noted last week in New York:

“My concern is that in 2013 what we will see is the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy….you can see month by month the addition of the number of countries who feel that active exchange rate management, always of course to push their exchange rate down, is growing.”

At the same time, some countries are moving on to adopt more obviously protectionist measures. Brazil, for example, has recently increased tariffs of polyethylene to 20% from 14%, whilst ethylene glycol tariffs rose to 20% from 2%.

Sadly, therefore, as we end 2012, the blog sees no reason to change its analysis that we have moved into a Cycle of Deflation. Excess production capacity build up during the SuperCycle has not been shut down. Instead, countries are all seeking to boost domestic growth by increasing exports and reducing imports. Falling prices are therefore the inevitable result.


Global auto sales remain slow as China boosts exports


Auto sales continue to struggle in 3 of the world’s main markets. The char...

Learn more

"Growth won't save us - there won't be any"


Merryn Somerset Webb, editor-in-chief of Money Week and also a Financial Times c...

Learn more
More posts
The state of the global economy in 2020

Last Wednesday, I gave the opening presentation for the ICIS PET Conference and looked at whether th...

Reality dawns for business as No Deal Brexit approaches

I warned before the June 2016 Brexit referendum that Brexit was all about politics, and Boris Johnso...

Global chemical industry – key trends for success in today’s New Normal

The chemical industry is the best leading indicator for the global economy. On Friday, I had the pri...

Oil prices signal potential end to the V-shaped recovery myth

Oil prices have moved into another ‘flag shape’ – which previously provided critic...

Bankruptcies now the key risk as hopes for V-shaped recovery disappear

Governments, financial markets and central banks all originally assumed the Covid-19 pandemic would ...

Merkel warns of need to prepare for No Deal Brexit

Most people missed the fact that last Tuesday was the last possible date to delay the UK’s exi...

World moves from Denial to Anger, as the Paradigm of Loss moves forward

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

The New Normal for global industry

The global chemical industry is the third largest sector in the world behind agriculture and energy,...


Market Intelligence

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

Learn more


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