Global confidence erased as trade war bites

04 October 2018 16:01 Source:ICIS Chemical Business

The US-China trade war and emerging markets’ exchange rate volatility are, not surprisingly, weighing on economic confidence. And, facing rising costs, petrochemical producers look set for a challenging fourth quarter.

An economic conditions snapshot from consultants at McKinsey pictures sharply declining confidence now and a more cautious outlook. Respondents to a survey from the firm were less positive for the third quarter in a row.

The survey results chime with others. China’s manufacturing purchasing managers’ index (PMI) slipped to an eight-month low in September.

“Expectations for trade activity are declining, trade-related risks are still perceived as top threats to growth and, for the first time this year, less than half expect the rate of economic growth, both at home and globally, will increase over the next six months,” McKinsey said. “The view from emerging economies is particularly downbeat.”

Economic sentiment has turned down and the prospects for growth are more muted among the executives 
surveyed. For the first time since December 2016, more of this group say economic conditions had worsened rather than improved.

The reasons for this are not hard to find. Trade disputes and the level of trade activity are clear influences. Emerging markets contagion following the collapse of the Turkish lira is of deep concern.

The eurozone manufacturing PMI from IHS Markit was the weakest since September 2016 and business sentiment reached a 35-month low. Eurozone manufacturing was growing strongly at the start of the year and so the downturn has been significant.

Eurozone September PMI paints the “worst trade picture” for over five years, with export growth having slumped sharply from record highs in late 2017 to “near-stagnation”, said IHS Markit chief economist Chris Williamson.

“The sector has seen booming growth at the start of the year rapidly fade to the worst performance for two years in September as production and jobs growth have slowed in response to a stalling of export trade.”

The souring of the outlook for growth comes at a time of increasing costs for petrochemical producers.

In the US, feedstock ethane prices have risen sharply, reducing the US cost advantage as producers push for a greater presence on the global stage.

Rising hydrocarbon costs have also been biting into margins in Europe. The ICIS cracker margins for northwest Europe, for example, were down sharply this week on the back of rising naphtha and LPG prices.

 

By Nigel Davis