Cefic: Business Uncertainty to Affect Industry in 2012

17.01.2012 -

Chemicals in 2012 - Growth in European chemicals output will be weaker than expected on 2012 because of heightened business uncertainty and inventory trimming, industry group Cefic said. The group's summary forecast of chemicals sector economists predicts year-on-year growth of chemicals output for 2011 is likely to be 2%, in line with the historical trend growth rate and against 4.5% expected in June. Expansion in 2012 will probably reach 1.5%.

"The continuing debt crises in the Eurozone and high U.S. government debt level have undermined macroeconomic sentiment since the summer," Cefic President Giorgio Squinzi said. "Companies are hoarding cash. The uptrend in oil prices has halted, reducing the incentive to buy ahead. Added to this is increased business uncertainty, which is encouraging reductions in inventories. Lower output growth is the inevitable result."

Slow Growth in 2012

Following on from a strong demand recovery with double-digit growth in 2010, much of 2011's rise in chemicals output took place in the first quarter. Since then, output has been relatively flat. Cefic said it believes chemical industry growth will resume during 2012, however, strengthening slowly through the year. Its forecasters expect underlying EU gross domestic product growth of 1% in 2012, down sharply from the 1.8% they predicted in June.
But risks remain, mostly on the downside. Growth in most developed economies remains perilously slow, and austerity measures are provoking political protest. Developing Asian economies continue to grow, but asset bubbles there could deflate suddenly.

Consumer chemicals were the star of the European industry in 2011, with growth of 6.6%. They remain the top growth sector in 2012, at 2.5%. Other chemicals sub-sectors are near the average, although pharmaceuticals were expected to attain 3% growth in 2011 and 2.0% in 2012.

External Demand

EU output continued to be driven by external demand. The EU external trade surplus narrowed slightly during the first three quarters of 2011 from the record level reached in 2010. In 2012, the surplus is expected to be roughly stable, and inventories are also expected to cease falling. Construction stabilized in 2011, after prolonged contraction, and may grow a little in 2012.

"Companies have reported relatively strong global results for the third quarter and are in good financial health," Squinzi said. "If the Eurozone can finally establish an effective solution to the debt crisis, and deliver credible actions to stabilize markets and confidence, the European chemical industry can look forward to renewed growth through 2012."

But he warned that European chemical producers continue to suffer from high regulatory and social costs and high energy prices. Yet in the U.S,. shale gas development is attracting a new round of investment in basic petrochemicals, and the Middle Eastern capacity build-up continues.
"Global competition remains fierce," he said.