Credit crisis and economy are bound to worsen
Wells Fargo economist says credit crunch has a way to go
By Tom Stundza, Purchasing.com, and Joseph Chang, ICIS.com -- Purchasing, 9/18/2008 1:50:00 PM
The U.S. economy is on thin ice and will get worse before it gets better, and the renewed credit crisis could disrupt the chemicals supply chain’s globalization and consolidation, according to Scott Anderson, senior economist at Wells Fargo Economics in Minneapolis.
“I'd like to say the worst is past us, but it's impossible to put lipstick on this pig,” he tells the Chemical Purchasing Summit, organized by ICIS Chemical Business and Purchasing magazines. “The credit crisis is like an uncontrollable forest fire, with the future direction and potential damage to the U.S. economy at the whims of the markets.”
Anderson suggests that “the headwinds are intensifying” with inflating costs for raw materials, energy and freight pausing but not collapsing; business conditions rapidly eroding in Europe and Japan, as well as the U.S.; and the credit crunch intensifying, “showing no signs of abating anytime soon.” That’s why believes U.S. gross domestic product (GDP) growth in 2009 could be as low as 1.5%.
Further troubling signs for the U.S. economy are coming in the form of higher unemployment rates and higher household debt levels, Anderson says, who expects unemployment to rise from 6.1% currently to 6.8% by the first quarter of 2009.
“The labor market is likely to get sicker, even after nine consecutive months of job losses, and household debt is at record levels,” he says. “That's bad news and will intensify the credit crunch as banks revise up losses from mortgage defaults and credit cards."
Anderson believes that the current rapid retreat in crude oil and oil-based energy “will reduce chemical industry cost pressures” for a while, but the inflation outlook remains hazy. That’s because economic indicators remain weak, housing construction has a way to go before recovery, mortgage finance isn’t out of the woods and banks are tightening credit across the board--slowing business expansions as well housing purchases and non-residential building.
“So, the weakish economy, the global credit crisis and volatility in stock markets could temporarily disrupt chemical mergers and acquisitions activity and add risk to existing deals,” he says. And that’s despite the fact that “chemical marketplace conditions are ripe for further consolidation of the chemical industry.”
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