Submitted by Taps Coogan on the 7th of December 2018 to The Sounding Line.
Paul Hodges, chairman of International eChem, recently spoke with Real Vision about using chemical industry capacity utilization data as a leading indicator of the global economy, and warns that we may be entering a global recession.
“We spotted the sub-prime crisis by looking at autos and housing and electronics because they’re the big markets for chemicals… We have a very good relationship with the American Chemistry Council, who produce very detailed analysis in almost real-time of the capacity utilization in chemical industries around the world, and that is the best leading indicator there is… This is a proven best leading indicator, because if you compare changes in the capacity utilization with IMF growth forecasts, there is around a 70% correlation, which is far better than anybody else gets… We are at an early stage in the value chain so we can tell you what’s happening six months before the market realizes it has happened.”
“What we have been saying over the last six weeks is that we are either in a global recession, or we are about to enter it, and that’s not a call that we would make lightly, but it’s backed up by the evidence from corporates on what they’re seeing in terms of demand and, more recently of course, we are starting to get the first signs of that. We are down in terms of auto sales, housing, and electronics… If you take, Europe, the States, and China, what we are seeing now is a synchronized downturn in car sales over the past few months, month-on-month, with ne respite… In housing there was a peak in the early part of the year. It has since then been coming down. Obviously China, which has been incredibly important for the world economy and for chemicals, the trend has been going longer. And if you look at smart phones, smart phones are in a recession for the first time in history.”
While validating one’s accuracy as a leading indicator by correlating to IMF growth forecasts may not the most compelling argument (IMF forecasts are known to be inaccurate, overly optimistic, and bad at predicting recessions), the idea that chemical industry data should be a good barometer of the global economy makes intuitive sense and the warning ought to be heeded.
There is a bit more to the interview so enjoy it above.
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