Factors That Could Dampen Chemical Industry Momentum

The chemical industry is gradually gaining strength on continued momentum across major end-markets. While chemical makers are poised to gain from strength across automotive and construction sectors, strategic growth measures and investment on capacity expansion, the industry is still reeling under many challenges. There are a few reasons to be watchful about the chemical industry in the near term, which we have outlined below:

China Worries Continue

Slowdown in China -- a major market for chemicals -- remains a deterrent over the short haul. The world’s second-biggest economy remains plagued by persistent industrial overcapacity, weak private investment, rising corporate debt and a flagging export sector. In particular, ballooning debt levels (manifested by rising debt to GDP ratio) and rapid credit expansion have raised a red flag on the Chinese economy.

The country’s GDP expanded 6.7% in 2016, a deceleration from 6.9% a year ago, also the weakest annual growth in 26 years. The International Monetary Fund (IMF) projects growth in China to moderate to 6.5% in 2017 and 6% in 2018. Capital outflow pressures, rapid credit expansion, continued reliance on stimulus measures and geopolitical uncertainties are among the key risks to the country’s economic growth. As such, a sluggish Chinese economy may weigh on demand for chemicals in this significant market.

Eurozone Faces Risks

The European economy is still not out of the woods despite a string of positive data that suggest a recovery is steadily firming in the region. The Eurozone GDP rose 0.4% in the fourth quarter of 2016 (according to revised Eurostat data), same as witnessed in the third and also in line with expectations. However, political and economic uncertainties brought forth by Brexit, risks related to elections in major countries in the region (including Germany and France), and uncertainties surrounding the trade policies of President Trump are expected to weigh on sentiment in the Eurozone in the near term.

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