China stimulus to boost economy after consumer sentiment collapse – DowDuPont CEO

NEW YORK (ICIS)–The Chinese government’s latest stimulus measures should give a boost to economic activity in the coming months following the demand shock in December, the CEO of DowDuPont said on Thursday.

Ed Breen, CEO of DowDuPont

“China is phenomenal at stimulating its economy. In two to three months, it should really loosen things up,” said Ed Breen, CEO of DowDuPont, at a meeting of the Chemical Marketing & Economics Group in New York.

The severe downturn in China’s market in December 2018 came as a shock to the chemical industry – a “fascinating” phenomenon, he noted.

The cause of the downturn started in September when “China really tightened and put the screws on lending, especially shadow banking. Then all of a sudden, consumer spending just started to slow through September, October and November,” said Breen.

Then in December, China auto builds plunged 18% after a decade of growth while smartphone sales cratered 20%. “It’s incredible what happened,” he said.

US-CHINA TRADE SLAMMED SENTIMENT
While the tightening of lending started the China slowdown, the US-China tariffs really slammed sentiment, in turn hitting the brakes on purchasing by the consumer.

The actual direct impact from the tariffs on business was minimal for DowDuPont but the sentiment shift was huge, he said.

“When the tariffs hit, we probably lost around $50m in the supply chain – nothing [for a company the size of DowDuPont]. But it really spooked the Chinese consumer, as the stock market dropped 25% on the tariff talk,” said Breen.

However, with China undertaking its latest stimulus measures to loosen lending, “we think that will play out well”, he added.

GLOBAL ECONOMIC RISKS
Yet for the worldwide economy, “the percent chance of global recession is higher than it was a year ago. Europe is clearly slowing, China is clearly slowing, but the US is hanging in nicely, and the worldwide consumer is hanging in nicely,” said Breen.

As for the weakness in China automotive and smartphones, “we love those two end markets that dropped off”, said Breen.

DuPont, the specialty chemicals company to be separated from DowDuPont on 1 June, is poised to benefit from the secular growth trends within automotive, he noted.

“Our two biggest areas in auto are lightweighting and electrifying vehicles. If global auto sales are zero [growth], we’ll grow at plus 10%. If they fall 5%, we’ll grow at plus 5%,” said Breen.

“We’re studying the secular trends, and then throwing our dollars in them – hybrids, fully electric vehicles, autonomous vehicles,” he added.