Slow growth, no recession for US economy, chems in '20 - ACC economists

04:18' PM - Friday, 06/12/2019

The US and the global economy should see slow growth in 2020 with the performance of the US chemical sector reflecting the muted outlook, economists at the American Chemistry Council (ACC) said.

“Definitely a slowdown is occurring with a recoupling of global economies to the downside. The manufacturing downturn is more pronounced in developed regions such as the US and Europe but it does appear this is bottoming out,” said Kevin Swift, chief economist of the ACC.

“The consensus is that 2020 will be another year of slow growth, barring an unforeseen event, with the US economy strengthening in the latter half of 2020 to 2021,” he added.

The ACC sees US GDP growth of 1.8% in 2020, down from an estimated 2.3% in 2019 and 2.9% in 2018. That’s against a backdrop of global GDP growth of 2.6% in 2020, flat versus 2019 and down from 3.1% in 2018.

US chemical production volumes are projected to edge up just 0.4% in 2020 after an anaemic 0.6% gain in 2019. Volume growth has slowed dramatically from the 4.1% registered in 2018.

On a dollar basis, US chemical shipments should rise 2.4% to $569.1bn in 2020 after weak 0.5% growth in 2019. That’s down from a robust 6.1% growth rate in 2018.


Chief among the culprits of the weak performance is the US-China trade war. Additional tariffs are scheduled to be implemented from both sides on 15 December in the absence of a phase one trade deal.

US President Trump’s comments at a NATO meeting on 3 December threw a widely expected phase one agreement in doubt, as he noted no deadline for a deal, and that he may favour a deal after the November 2020 elections. Equity markets tumbled worldwide in response.

“Trade tensions have created tremendous uncertainty and curbed investment while exports of manufactured goods have been hit,” said Martha Moore, senior director - policy analysis and economics at the ACC.

In addition to the estimated $136.7bn of direct US chemical exports in 2019, around $49bn of chemicals are included in US manufacturing and agricultural exports, she noted.

US chemical exports of $136.7bn in 2019 are set to decline 2.5% from 2018, before ticking up 1.1% to $138.2m in 2020. Imports are also set to decline by 3.9% to $104.8bn in 2019 before rising 1.2% to $138.2bn in 2020, according to the ACC.

“The export side has been hit significantly with China’s retaliatory tariffs and the slowdown in global manufacturing,” said Moore.

The ACC’s assumptions for its projections include a stabilisation of US-China trade tensions, which includes a phase one trade deal, the economists noted.

If US and China tariffs are implemented on 15 December, it would just disrupt supply chains further, exacerbate the uncertainty and hinder further investment.

“If you want to build a new plant that you’d run for 25-30 years and plan to export 50-70% of the production, how do you plan for that amid the trade uncertainty?” said Swift.

So far, US chemical capital investment (capex) continues to chug along. Industry capex is projected to rise a robust 4.8% in 2020 after a similar gain in 2019 and up from 4.0% in 2018, according to the ACC.

“The US shale gas advantage underpins the US chemical outlook. The outlook would be very different under the same conditions without shale gas,” said Moore.

The trade uncertainty has slammed manufacturing PMIs (Purchasing Managers’ Indexes) but is also now impacting services PMIs, noted the economists.

The ISM US Non-Manufacturing PMI reading in November fell to 53.9 from 54.7 in October. The US manufacturing PMI in November fell to 48.1 from 48.3 in October.

Anything above the 50 level indicates expansion in activity while under 50 indicates contraction. Both readings came in below expectations.

The risk is that a prolonged US-China trade war and more tariffs stifle business investment and hiring.

“The next recession could potentially be the first policy-induced recession in modern times,” said Swift.


Despite the softness in global manufacturing and trade tensions - not just between the US and China but between the US and other countries - there is a relatively low probability of a US economic recession, the ACC economists said.

The ACC’s Chemical Activity Barometer (CAB) is meant to do exactly that as a leading indicator of the overall US economy.

The CAB reading for November was stable (0.0% change) on a three-month moving average basis following a 0.3% percent decline in October.

“The CAB would have to decline for three consecutive months, and register a cumulative decline of 3%. We are not even halfway there yet but the CAB is indeed suggesting a slowdown,” said Swift.

However, a resolution of the US-China trade war could “add another multi-year leg to the economic expansion. 2018 saw a surge in activity but then the trade war threw the equivalent of a heavy wet blanket on the economy”, said Swift.

“One of the causes of the downturn has been uncertainty on trade. If that’s taken away, the strong fundamentals take over,” said Moore.

Source: ICIS

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