Ageing Perennials Set To Negate Central Bank Stimulus As Recession Approaches

 

 

The world’s best leading indicator for the global economy is still firmly signalling recession.  That’s the key conclusion from the chart above, showing latest data on global chemical industry Capacity Utilisation (CU%) from the American Chemistry Council.

The logic behind the indicator is compelling:

  • Chemicals are one of the world’s largest industries, and also one of the most diverse
  • Every country in the world uses relatively large volumes of chemicals
  • And their applications cover virtually all sectors of the economy
  • They include plastics, energy and agriculture as well as detergents and textiles

If you want to know the outlook for the global economy, the chemical industry will provide the answers.

It also has an excellent correlation with IMF data, and benefits from the fact it has no “political bias”. It simply tells us what is happening in real-time in the world’s 3rd largest industry.

And now it is telling us that the CU% is continuing to fall. It was down at 83.1% in January, well below the long-term average of 86.5%.  In fact, it has fallen sharply from that level since December 2017.

Ironically, it was exactly a year ago that the world’s major central banks were congratulating themselves on the success of their policies. “Yes”, they said, “it had taken longer than expected, but we can finally declare victory for our post-2008 stimulus policies”.

Caption

Unfortunately, however, this confidence was misplaced as the second chart suggests.

It shows there was a brief rebound in 2010 after the 2008 Crisis as the first round of stimulus took place. But then growth fell back again.

Instead of learning the lesson, the banks decided to do more of the same.  But repeating the same action in the hope of a different result is not terribly sensible.  And so it has proved.

Next month will see the IMF’s new estimate for 2018’s GDP growth (black line). Chemical industry CU% data (the red line) suggests it will have to be revised downwards, once again.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this ...

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Gary Anderson 7 months ago Contributor's comment

Very interesting article and charts.