42
Chemical industry data is better at forecasting than the IMF
The ACC data shows the percentage change in CU % updated to include reported data for August 2016 .
As can be seen , there is extremely close correlation between the two sets of data .
Critically , however , the ACC data is realtime , generally being produced within a few weeks of the end of each month . But the IMF data is subject to major revision , and as we noted in July ( The pH Report , Brexit opens new faultlines in the ‘ Ring of Fire ’):
“ Their models have proved exceptionally bad at forecasting in recent years – due presumably to their refusal to include adjustments for demographic trends .”
Chart 3 ( repeated from the July Report for convenience ) confirms the problems created by the IMF ’ s continued over-optimism on the economic outlook . This has created shortterm opportunities for agile traders , but has proved positively misleading for anyone trying to plan for the future . The data has caused many companies to assume that demand would be more robust than in reality , and so encouraged further over-capacity to develop .
Back in 2011 , for example , as chart 2 shows , the IMF was forecasting growth of almost 5 % in 2016 , and it was still forecasting 4 %
Percent change , year-on-year
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2010
IMF WORLD REAL GDP GROWTH FORECAST 2010 – 2020 actual growth
2012
2014 forecast
Sept 2011 forecast Oct 2012
forecast Oct 2013
2016
SOURCE : International Monetary Fund ( IMF )
OPERATING RATE % forecast Oct 2016
100
95
2018
90
85
80
75
1988 forecast
Oct 2014
1990 forecast Oct 2015
2020
GLOBAL CHEMICAL CAPACITY UTILISATION % 1987 – 2016 ( to date )
1992
Chart 3 : Global chemical industry capacity utilisation is signalling a downturn
Chart 2 : IMF forecasts have been consistently over-optimistic
1987 – 2008 AVERAGE = 91.3 %
1994 1996
SOURCE : pH REPORT ANALYSIS : AMERICAN CHEMISTRY COUNCIL DATA growth as recently as 2013 . Today , however , they are forecasting just 3 % as the actual out-turn for 2016 . It is therefore hard to blame companies for committing to major capital expenditure programmes back in the 2011 – 2013 period , based on this optimism .
But now , of course , companies will have to deal with the problems created in the marketplace by these unnecessary expansions . Not only are they unlikely to provide the expected return on investment , but they have also created deflationary pressure on prices , as supply / demand moves further out of balance . By contrast , as chart 3 confirms , the ACC data has been a very reliable guide since
2011 , highlighting that the economy has consistently failed to respond as expected by the IMF and other forecasters . Had this data been used as the base case , unnecessary investment would have been discouraged . Even more importantly , policymakers ’ wishful thinking would have been challenged much earlier , together with the theory that monetary policy could restore economic growth .
2
1998 2000
2002 2004
2006
2009 – 2016 AVERAGE = 82.1 %
JULY 2016 = 78.7 %
China heads for political turbulence as 19th Congress approaches China ’ s economy is reaching a difficult stage as the country enters the critical period ahead of the 19th Party Congress due in
Companies now have to deal with the problems created by over-expansion
2008 2010
2012 2014
2016