European chemicals sector to slowly strengthen in 2012

Brussels, Belgium – Growth in European chemicals output will be weaker than expected this year because of heightened business uncertainty and inventory trimming, industry group Cefic said in a recent report. However, the organization says it expects the sector to slowly strengthen over the year.

The group’s summary forecast of chemicals sector economists predicts year-on-year growth of chemicals output for 2011 is likely to be 2.0 percent, in line with the historical trend growth rate and against 4.5 percent expected in June. Expansion in 2012 will probably reach 1.5 percent.

“The continuing debt crises in the eurozone and high US government debt level have undermined macroeconomic sentiment since the summer,” said Giorgio Squinzi, Cefic’s president.

“Companies are hoarding cash,” he added. “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.”

Following on from a strong demand recovery with double-digit growth in 2010, much of last year’s rise in chemicals output took place in the first quarter. Since then output has been relatively flat.

Cefic believes chemical industry growth will resume during 2012, however, strengthening slowly through the year. Its forecasters expect underlying EU gross domestic product growth of 1.0 percent in 2012, down from the 1.8 percent 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 percent. They remain the top growth sector in 2012, at 2.5 percent. Other chemicals sub-sectors are near the average, although pharmaceuticals are expected to attain 3.0 percent growth in 2011 and 2.0 percent in 2012.