According to ICIS forecasts, the medium-term demand for petrochemical products in most regions will remain weak. Oxford Economics expects the global GDP to decline by 3.5% in 2H 2020. Experts' forecasts get increasingly worse – one of the latest articles in the Economist suggested that the crisis might have negative impact on up to 90% of the global economy.

ICIS analysts believe that a clear correlation between the GDP and the demand for petrochemicals no longer exists. The consumption dynamics remains highly uncertain. The decline in GDP is largely driven by stagnation in the service sector caused by the lockdown, travel ban, closed restaurants and beauty salons, etc. In the industry, a number of sectors also suffered declining inventories and investor hesitancy.

In addition, uncertainty is fuelled by mass lay-offs and lost revenues for businesses. In April 2020, the US unemployment reached 14.7%, a record high since the Great Depression. Other countries also demonstrated negative trends – according to the Daily Mirror, the living standards declined for 43% of the UK households. On a positive note, the majority of the working population (estimated more than 50% in developed countries) have savings. Besides, the lockdown allowed people to cut down some costs.

A similar unemployment rate was last recorded in the US during the Great Depression.

One of the key concerns of analysts is how the households will be spending the money – will they return to their old spending habits or keep saving to mitigate potential risks? That we are yet to find out.

Government support may be ineffective

Another pressing issue is how government support affects the economy. In China, many market players expect the government to introduce new stimulus packages for specific industries, including construction and production of household goods. However, ICIS experts believe that their impact will be rather limited even in China.

Countries are offering various support mechanisms for people in need and borrowing more money to do so while tax revenues are shrinking. Additional large-scale subsidies will be costly and may not yield the desired effect if consumers keep avoiding risks.

On top of that, an abrupt end of the lockdown could trigger a second wave of the pandemic. Therefore, certain travel restrictions and bans as well as restrictions for cafés, restaurants and shops may persist, ICIS analysts believe.

The traditional patterns of goods and labour movements may also undergo some changes. Some supply chains will remain disrupted in the short term due to limited international freight traffic. Closed borders may affect industries relying on immigrant labour, such as construction and agriculture. It is not quite clear whether workers from South Asia will be allowed to the Middle East, Mexicans to the United States, and Eastern Europeans to the Western Europe, ICIS analysts state.

Low oil prices will not drive up the demand

Another key issue is how oil prices affect the petrochemical industry. In theory, lower prices reduce the cost of feedstock and end products. Economically, it is supposed to boost the demand. However, risk-averse consumers may prefer to save money rather than to spend it, despite lower prices. On top of that, other expenses may go up – for example, stores have increased cleaning spending while enforcing social distancing and limiting the number of customers, experts say.

The carmakers are taking the greatest hit according to ICIS. The demand may shrink by 25%.

As for the industries, the carmakers are taking the greatest hit according to ICIS – the demand in 2020 may shrink by 25% due to their complex supply chain, difficulties maintaining social distance at factories, etc.

Other affected industries include furniture, textile, paper, printing and household appliance segments. They all offer non-essential goods the demand for which has fallen down, and their production process is also disrupted. Notably, the construction industry suffered less since some essential works were not suspended.

Poorer forecasts for 2021 are mostly in line with the revised estimates for the current year, though the decline is expected to slow down. Oxford Economics believes in a long-term economic impact of the crisis and falling production in most industries.

China: moderate growth

The forecasts regarding China’s economic prospects are not uniform. Many optimists believe that the country will overcome the crisis through fiscal and monetary stimuli. But there is a deterrent in this scenario – if markets and shopping centres reopen, the country risks a second wave of the infection.

Experts believe that the recovery of the Chinese economy can mitigate the pandemic consequences for global markets. Photo: TCL Air Conditioner employees at a production site, Jiujang, China.

Secondly, the state’s financial resources for additional measures are limited. On top of that, the reduced global economic activity and attempts to localise supply chains may negatively affect the exports.

So analysts believe China’s economic growth in 2021 to be modest in most sectors, except the food industry and hygiene products

US and Eurozone: 2021 recovery

The Western countries will feel the aftermath of the pandemic even after the restrictions are lifted. The issues will relate to transport and logistic bottlenecks, staffing and weak demand. According to the Oxford Economics base scenario, production will return to pre-crisis levels by Q3 2021 in the US and by Q2 2021 in the Eurozone. The recovery might take longer if the countries face a second wave or the consumers remain extra cautious.

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