OPERATING RATE %
100
95
90
85
80
75
It seems prudent to assume global recession as the Base Case for 2017 recession
GLOBAL CHEMICAL CAPACITY UTILISATION % 1987 – 2016 ( to date )
Source : OECD Quarterly National Accounts Dataset
1987 1988
1989 1990
1991 1992
1993 1994
1995 1996
1997 1998
2009 – 2016 AVERAGE = 82 %
apart from June , when it temporarily stabilised at 79.3 %
� It is now only 1.3 % above the March 2009 level , which marked the bottom of the sub- prime crisis in March 2009
The industry is normally around 8 – 12 months ahead of the wider economy , due to its early position in the supply chain . This means that it seems prudent to assume as a Base Case that the global economy will move into recession during 2017 .
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009
2010
1987 – 2008 AVERAGE = 91.3 %
NOVEMBER 2016 = 78.3 %
2011 2012
2013 2014
2015 2016
▲ Chart 3 Chemical industry capacity utilisation fell again in November and is close to 2009 ’ s record low
▼ Chart 4 Production data for the world ’ s Top 10 economies confirms a weakening picture
Clearly this is not a consensus view at the moment . But as we have discussed in previous Reports (‘ Business as usual options fade in post-Brexit world ’, October 2016 ), the track record of the CU % correlates very well with IMF data for global GDP .
Chemical production data for the world ’ s Top 10 economies also confirms the picture of a downturn , as shown in chart 4 :
< Canada has been doing well , Japan has been steady , Italy has been recovering
= But India ’ s growth has collapsed from 7.9 % to 1.6 % over the past year
< Brazil has recovered from -3.9 %, but is still only at 0.9 %
= Germany has remained weak , slipping slightly from 0.8 % to 0.7 %
= China has fallen from 5.3 % to -0.3 %: France has fallen from 5.4 % to -0.8 %
= The USA has fallen from 1.5 % to -1.1 %: the UK has fallen from 4.2 % to -3.3 %
This data from the real economy is clearly at variance with the buoyant mood of financial markets in many developed countries . But that is perhaps no great surprise , considering that policymakers have specifically targeted a stock market recovery since 2009 , believing as Ben Bernanke wrote in November 2010 that :
“ Higher stock prices will boost consumer wealth and help increase confidence , which can also spur spending . Increased spending will lead to higher incomes and profits that , in a virtuous circle , will further support economic expansion .”
44
%
12
9
6
3
0
-3
-6
CHEMICAL PRODUCTION IN ‘ TOP 10 ECONOMIES ’ MONTHLY CHANGE %, NOV 2015 – NOV 2016
Source : pH Report analysis : American Chemistry Council Data
Nov-15 Dec-15
Jan-16 Feb-16
Mar-16 Apr-16
May-16 Jun-16
Jul-16 Aug-16
Sep-16 Oct-16
Nov-16
Canada Japan Italy Indoia Brazil Germany China France USA UK
It seems unarealistic to expect the stock market to see a further Reagan-era type rally without at least a pause in the pace of gains