ACC data Sept14Chemical production is currently the best leading indicator for the wider economy, as financial markets have lost their power of price discovery due to the impact of central bank stimulus.

The above chart, based as always on the excellent American Chemistry Council (ACC) data, continues to flash the orange warning signal first seen last month.  The key issue then was the very worrying slide in operating rates during the seasonally strong Q2.  As the ACC had noted then, ”growth stalled in Q2“.

Today, it seems the weak performance is continuing with production slowing almost everywhere:

  • Global growth peaked at 5% in April, but has since fallen to just 3.3% (black line)
  • N America improved in August, but as the ACC comment, ”even with a competitive edge and some-what stronger recovery, production has been limited by weakness elsewhere in the globe (green)
  • Latin America has fallen very sharply, down from 1.2% growth in March to a 3.9% fall in August (red)
  • W Europe has fallen from 4% growth in May to 2.9% in August (light blue)
  • Central/Eastern Europe has collapsed from 2.4% growth in February to a 3% fall in August (orange)
  • Middle East/Africa has slowed from 8.4% growth in February to 6.7% in August (dark blue)
  • Asia has slowed sharply from 8.3% growth in March to 5.6% in August (purple)

Some individual countries have also seen very sharp falls.  Germany, for example, has gone from 4.8% growth in February to a fall of 3.5% in August.  India has crashed from 12.9% growth in January to 3.4% in August.  Japan has fallen from 9.2% growth in March to just 0.8% in August.  Mexico has gone from 1% growth in April to a 2.8% fall in August.  Russia has gone from 4.2% growth in January to a fall of 10.4% in August.

Only one major country has maintained a relatively strong growth level – China.  It peaked at 11.1% in April, and saw 8.8% growth in August.  But, of course, this stability is due to its shift to become an exporter, rather than importer, following the loss of its downstream markets in the West.  This confirms the blog’s conclusion yesterday when discussing Sinopec’s financial performance.

China is now well on the way to becoming a major exporter of many key petrochemicals.  And it will continue to reduce its import needs from Asia and other regions as fast as possible.”

The sharp global slowdown now underway confirms that companies and investors have been the victims of a collective delusion in recent years.  We accepted the assurances of the central banks that they could easily restore growth to previous Boomer-led levels, despite the ageing of the global BabyBoomer population.

But central banks can only print money, they can’t create babies.  And only babies, when they grow up, can create sustained demand growth.

Chemical production data doesn’t lie.  It makes clear that we are instead heading for an abrupt change of economic course as we enter the New Normal.