March 3, 2009

REVISED FORECAST

Chemical Industry Outlook Worsens

Main industry trade group drops its forecast for 2009 chemical output

Melody Voith

The American Chemistry Council projects that U.S. chemical output, excluding pharmaceuticals, will drop 8.7% this year from 2008 levels. ??The forecast represents a dramatic lowering of the trade association's projections from December 2008, when it estimated only a 3.1% decline.

In a double-whammy of bad news, this year's slowdown in output will come on top of a downward-revised figure for output in 2008. T. Kevin Swift, chief economist at the ACC, reports that 2008 production shrank 6.3%, about double his December estimate.

Even pharmaceuticals will venture into negative territory, according to Swift, though it is still the strongest chemical segment. He projects a small 0.7% output decline this year, compared with a 0.7% increase in 2008. Basic chemicals output will be the hardest hit, declining 12.5% in 2009.

Swift says that the updated figures reflect the same trends that he identified late last year, but that the magnitude of the slowdown is greater than economists anticipated. "With a worsening economic environment, final demand has dropped and customers continue to reduce their inventories," the economist says.

The U.S. Commerce Department's Bureau of Economic Advisors is also reducing its estimate of economic activity. BEA now says that fourth-quarter gross domestic product plummeted an eye-popping 6.2%, compared with its initial estimate of 3.8%. The largest single contributor to the change was motor vehicle output, which subtracted more than 2% from the total GDP.

Swift does anticipate a light at the end of the tunnel later in the year, due in part to spending from the federal stimulus package. "The massive stimulus being injected into the U.S. and other world economies will foster demand, and a virtuous cycle of recovery will engage," Swift says.

Quantifying the anticipated stimulus impact is difficult, but ACC points out that every $1,000 spent on non-residential construction yields an estimated $160 to $230 in total chemistry sales. Spending on energy efficiency projects, such as wind turbines and solar cells, may boost chemical demand by an even higher amount, according to ACC.

Chemical & Engineering News

ISSN 0009-2347

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