China GDP could slow to 4.5% in 2020 as coronavirus, trade war bite – BASF

Ludwigshafen, GERMANY (ICIS)–China’s GDP growth could fall to 4.5% in 2020 as the impact of the coronavirus continues and no immediate easing of the country’s trade conflict with the US is expected, the CEO at Germany’s chemicals major BASF said on Friday.

The impact of the coronavirus outbreak in China is expected to continue through the first half of the year, disrupting supply chains, customer demand, and access to raw materials.

This, along with the global economic slowdown and the ongoing US-China trade war, is likely to push down China GDP growth by 1.6 percentage points from 2019, which until this point was the weakest growth rate the country had seen in nearly three decades.

“We predict that GDP growth in China will go down from 6.1% last year to 4.5%,” said CEO Martin Brudermueller, speaking to reporters at BASF’s flagship site of Ludwigshafen, Germany, following the publication of fourth-quarter and annual results.

“However, this is in absolute terms still huge because the major part of all the growth globally is China, with other countries not contributing much.”

The company is predicting the worst global chemicals demand this year since the global 2008 economic downturn, at 1.2% compared with 1.8% last year, amid a projected decline in worldwide GDP growth from 2.6% in 2019 to 2% this year.

BASF’s projection of 4.5% growth for China this year is substantially worse than the most pessimistic projections set out by economic analyst CEIC earlier this month, which assumed growth of 5.49% if the impact of the outbreak were to substantially recede by the end of March.

Many of BASF’s production sites in China have been back up and running since 17 February, Brudermueller said, but logistics remain difficult.

“Some customer plants are well-utilised, others are less well-utilised,” he said.

“Transport chains have been interrupted. It’s very difficult within one city or one province to arrange travel, and even more difficult to go beyond those borders.”

In some cases, truck drivers making deliveries are required to stay inside the vehicle with the windows up while deliveries are unpacked, he added.

The virus is having an increasingly drastic effect in other parts of the world, with larger incidences of contagion noted in Singapore, Italy, and Iran.

While SARS has been used as a basic model to project the economic impact of coronavirus, the International Energy Agency (IEA) noted this month that China is a much larger market than it was in 2003 and is much more embedded into the globally economy.

“It doesn’t only have an effect in China, our assumption [is] that it will be rolling out over the world,” Brudermueller said.

“It will show us how deeply integrated China is in worldwide procurement chains.”

Despite BASF’s bearish projections for China growth, Brudermueller noted that chemicals demand in the country had substantially outpaced global growth over the past half-decade, and that the company’s own sales increases had outpaced that mark.

China chemicals demand rose an annual average of 5% over the last five years, compared with 3% globally, and BASF’s sales volumes in the country rose 7% over the period, said the CEO.

Front page picture: View of a storage tank at BASF’s Ludwigshafen site; archive image
Source: Ronald Wittek/EPA-EFE/Shutterstock