The end of the Economic SuperCycle

Economic growth

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A paradigm shift is underway in global petrochemical and polymer markets, as I discuss in a new article for ICIS Chemical Business.

Previously successful business models, based on the supply-driven principle, no longer work. As our new study, “Demand – the New Direction for Profit”, explains, companies now need to adopt demand-led strategies if they want to maintain revenue and profit growth.

The infographic above highlights the key issues:

  • During the 1980s/1990s, the BabyBoomers – the largest and wealthiest generation that the world has ever seen – entered the Wealth Creator generation (those aged 25 – 54), when income and spending peak
  • They powered an Economic SuperCycle
  • The world’s largest economy, the USA, suffered just 16 months of recession in 25 years between 1983 – 2007
  • The demand surge created the phenomenon of globalisation, integrating Eastern Europe, then China and India, into the global economy
  • It peaked between 1995 – 2000, when all the BabyBoomers (born 1946-70) were in the Wealth Creator generation

But then the oldest Boomers began to join the New Old generation of those aged 55+.  In the past, they would have died very quickly – life expectancy, even just a century ago, was only 46 years in the West, and 26 years in emerging economies.  But major advances in healthcare, food/water safety, and personal lifestyles meant that the average 65-year old could instead hope to live another 15 – 20 years.

Demand growth began to decline.  The New Old already own most of what they need, and their incomes decline as they enter retirement.

Policymakers refused to accept this obvious fact.  Instead, they claimed to be able to produce constant growth by boosting financial markets.  First they created the subprime bubble in the USA, and then today’s stimulus bubble.  This had created $57tn of debt by 2014, nearly the size of the global economy.  Clearly, this could not continue:

  • China was the first to change economic course, when President Xi Jinping took office in 2013
  • The Great Unwinding of policymaker stimulus began in August 2014

China had been responsible for more than half of the stimulus spending under the previous leadership.  So its New Normal policies had a major impact on the global credit bubble.

Since then, oil and commodity prices have collapsed, and economies dependent on exports to China have gone into recession.  Global GDP fell by a record $3.8tn in 2015 in current dollars.  Inflation is turning into deflation.

But still, policymakers in the developed world refuse to accept that demographic changes are driving the global economy.  Instead, they are creating even more debt – which can probably never be repaid.

What are companies and investors to do?  As the infographic below describes, they have a clear choice ahead:

  • They can either hope that somehow these new stimulus policies will succeed despite past failure
  • Or, they can join the Winners who are now starting to develop new revenue and profit growth by adopting demand-led strategies

Please click here if you would like to download a copy of the feature article, and click here to download a copy of the Study brochure.

New Normal infographic

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