Go USA - Following a strong 4th quarter 2011, the US economy seemingly started the year on firm ground with gains in consumer spending, manufacturing output, and even housing. It is unclear to what extent the mild winter weather played a role. What is clear, however, is that the recession in Europe and slowdown in China, other Asian nations, and some Latin American economies have taken a toll on demand for US exports.

Confidence has suffered as well as the world holds its breath, waiting to find out how the financial crisis in several European countries will be contained. First quarter growth was mediocre and the 2nd quarter may have been even weaker. The outlook for the rest of the year is for slow growth with improvements in investment spending and residential investment as the bright spots. Lower energy prices will support modest gains in consumer spending and help to offset the effects of high unemployment and low wage growth that are constraining incomes. The consensus forecast for US GDP is for continued growth, expanding by 2.2 % in 2012 and 2.4 % in 2013. The recovery remains fragile with multiple risks on the horizon and the wrong trade, tax or other policy initiatives could derail activity.

Global Economy
Over the past several months, the headwinds facing the global economy have intensified. The financial crisis in Europe has deepened with serious doubts that the Eurozone can continue in its current form. Uncertainty about future fiscal policy is also eroding confidence. Further, Chinese manufacturing has slowed considerably again raising concerns about the health of the world's second largest economy. As a result, the outlook for global GDP (market exchange rate) has weakened with 2.3 % growth expected in 2012 and 2.9 % in 2013.

Manufacturing
In the United States, the recovery of key chemistry end-use markets has been mixed. The manufacturing sector, which is the largest consumer of chemistry, was strong during the early part of the year. It has weakened, however, as export markets softened and because of renewed retrenchment from uncertain households and businesses. Inventories remain roughly in balance and an inventory correction on the scale of the 2009 event is not expected. Motor vehicle production rose sharply as pent-up demand from both consumers and the business sector propelled vehicle sales to their highest rates since the start of the recession. Vehicle sales are expected to rise to 14.4 million in 2012 before increasing to a 14.7 million pace in 2013. Following six years of steep declines and bumping along the bottom, housing remains weak with starts expected to grow only modestly in 2012 to a 750,000 unit pace. In 2013, however, housing may finally see shoots of a recovery as housing starts improve to a 920,000 unit pace.
Despite gains in vehicles and housing, weakness in export markets and domestic manufacturing will likely limit gains in chemical demand. Production of chemicals, excluding pharmaceuticals, has eased as demand from both domestic and export markets have slowed. Improvements in capacity utilization have stalled as the manufacturing sector cools. Reflecting the soft patch in global manufacturing, trade volumes in chemicals have slowed during the 1st quarter. Nonetheless, US based petrochemicals have enjoyed a competitive position last seen in the 1990's due to the abundance of natural gas and natural gas liquids from shale. This will enhance US exports and trade volumes are expected to pick up when a recovery resumes. American chemistry output is anticipated to rise by 0.5 % in 2012, before accelerating to a 2.3 % growth rate in 2013. With some sort of resolution expected in Europe in coming years and with rebounding growth in emerging markets, American chemistry is expected to play to its cost advantage. Growth in chemistry is expected to accelerate in the years ahead, growing faster than GDP.

Pharmaceuticals
Output in pharmaceuticals is expected to decline 1.4 % in 2012 before recovering to a moderate 2.4 % growth rate in 2013. For chemistry excluding pharmaceuticals, we expect to see 1.9 % growth in 2012 before expanding by 2.3 % in 2013 and 2.2 % in 2014. Production of basic chemicals is expected to grow by 1.1 % in 2012 and 2.2 % in 2013 following a decline in 2011. Strong growth is expected in inorganic chemicals, plastic resins and synthetic rubber. Production of specialty chemicals is expected to grow 5.1 % in 2012 driven by demand from end-use markets before improving further to a 3.0 % pace in 2013. Comparatively strong gains are expected in agricultural chemicals and consumer products as well.

Capital Spending
Strong gains in capital spending by American chemistry are expected during the next several years, the result of announced new investment in petrochemicals and derivatives arising from shale gas developments. The need to add capacity and improve operating efficiencies will play a role as well. Capital spending in the business of chemistry will reach $35.5 billion in 2012 and will steadily rise to $51.5 billion by 2017.

Global Chemistry
Global chemistry continues to advance, with expectations for output to grow by 2.3 % in 2012, 4.3 % in 2013, and 4.7 % in 2014. Output of chemicals in emerging markets will outpace production in developed countries. China, the world's largest chemical sector, will continue to grow strongly, but at a slower pace than the previous decade. India and other emerging markets in the Asia-Pacific region will continue to expand. Africa and the Middle East will also experience strong growth as will Latin America after 2012. From a product standpoint, the strongest growth in 2012 is expected in specialties, consumer products, and agricultural chemicals. As the global manufacturing sector cools, so will demand for basic chemicals. Looking ahead, however, growth will be driven by the cyclically sensitive sectors such as petrochemicals and organic derivatives, plastic resins, synthetic rubber and man-made fibers as well as specialty chemicals and consumer chemistry. Rising incomes and consumption in addition to other demographic factors (i.e. aging populations) will support growth in pharmaceuticals. In the long-term, global chemistry growth will average 4.0 % per year, a pace exceeding that of the over-all global economy.

The full report is available at www.americanchemistry.com.