The British chemicals industry will be unable to escape the uncertainties relating to the eurozone debt
crisis, with any drop in export activity at a time of domestic demand stagnation likely to lead to a
contraction in output in 2012.
Industrial production growth, which is a fairly good indicator for growth in the chemicals sector, is only
mildly negative, with contracting economic output typically associated with much sharper declines in
production. In addition, the latest purchasing managers’ indices (PMIs) suggest that the economy likely
stalled rather than contracted during Q411, with the manufacturing PMI rising to 49.6 in December,
suggesting that the pace of decline in output has eased. The construction PMI picked up to 53.2 in
December from 52.3 the previous month. As such, the situation facing the British chemicals industry was
relatively benign going into 2012.
Nevertheless, the British chemicals and petrochemicals economy faces a tough year in 2012, with the
eurozone sovereign debt crisis risking a return to recession. We forecast growth below 1.0%, essentially
flatlining, on the assumption that Europe’s policymakers prevent an outright meltdown of the euro. The
UK is heavily exposed via financial and trade channels and so a failure to stem the crisis would drive the
economy back into recession, in our view. Given the high degree of financial and trade interdependency
with the eurozone, a failure to resolve the debt crisis would also likely lead to a contraction in British
The UK scores 72.0 points in BMI’s latest Western Europe Regional Ratings, up 2.4 points since the
previous quarter leading to an increase in its position in the regional rank from fifth to fourth place. It is
now 0.4 points behind the Netherlands and 1.0 point ahead of Belgium. Although the score has improved
as a result of a rise in its country risk score, protracted economic stagnation, increased political
uncertainty and further plant closures could see the country’s score diminish, potentially resulting in its
rank falling back.
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