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Chemical Outlook Dims For Europe

Economy: Trade group lowers forecast for growth in the EU to zero

by Melody M. Bomgardner
June 25, 2012 | A version of this story appeared in Volume 90, Issue 26

Austerity flattens European chemical output.
a Forecast. SOURCE: CEFIC
This graph shows the European chemical industry's output from 2008–2013.
Austerity flattens European chemical output.
a Forecast. SOURCE: CEFIC

The main trade group for Europe’s chemical manufacturers now says European chemical output will not grow at all in 2012 because of the impact of the European Union’s debt crisis. The European Chemical Industry Council, or CEFIC, had earlier forecast a growth rate of 1.5%. In 2011, the region’s chemical output grew by only 1.3%.

“Domestic demand for chemicals will decline slightly as compared with 2011 as austerity measures in EU member states dampen business orders and inventory buildup remains flat, due to continued weak EU business sentiment,” says CEFIC Director General Hubert Mandery.

Even the lowered expectations are based on optimistic assumptions. For example, CEFIC assumes that problems of public-sector debt levels and bank weakness won’t become widespread among EU member states. It also makes assumptions about future growth rates in the U.S. and China, both of which are key export markets for European firms.

At the end of the first quarter of 2012, chemical executives in Europe and the U.S. said they expected stronger demand for chemicals in the second half of the year, but that lift may not occur, recent data suggest.

In the U.S., T. Kevin Swift, chief economist at the American Chemistry Council, CEFIC’s U.S. counterpart, says recent weeks’ economic indicators are mixed; business inventories are up, but overall industrial production fell in May for the second time in the past three months.

“Retail sales were disappointing and reflect the slowing recovery,” Swift adds, explaining that consumers are worried about jobs, stock market returns, and another potential financial crisis.

Chemical industry economists have plenty of company in downgrading expectations. On June 8, Bruce C. Kasman, chief economist at investment bank JPMorgan Chase, lowered his forecast for global economic growth during the second half of the year to 2.1% from 2.6%.

CEFIC’s Mandery and ACC’s Swift argue that manufacturing would rebound with economic policies designed to instill greater business confidence. Further policy action is in fact expected from central banks, Kasman says, “but it is hard to envision a global response of meaningful size.”



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