The beginning of August seems to have reached a new tipping point.
Eventually borrowing has to be paid for. Debtor countries and individuals need to control their spending and bring their accounts back into balance. The US and European politicians’ inability to tackle the fundamental problems means that reality has finally caught up with the optimists. “Kicking the tin down the road” does not work in the long run.
As Purchasing Managers Indices (PMI) fall in the US, Germany, UK and China, there is a clear risk that we are heading into “double-dip recession” territory.
We could, of course, be seeing The Whiplash or Bullwhip effect. This is another way of looking at the global situation by considering the system’s dynamic effect rather like a whiplash, originally documented by JW Forrester in the early 1960s and further developed in the Sloane Management Review in the ‘90s.
Recently, after an initial fall with companies moving quickly to cut costs and payrolls, we saw a sharp fall in 2008/9. This was followed by a quick rebound as companies restocked, supported with vast amounts of government money. Now we are seeing the next stage in the oscillation, the secondary effect downswing. This is potentially being given new stimulus, on the downside, by the paralysis of our governments and the risk of the break-up of the Euro-zone.
Rebalancing is the word of the moment; from Debtors to Creditors, from Consumers to Corporate in the west and from Infrastructure to Consumers in the East. What appears to be emerging is an even faster shift from the Debtor western economies to the rising Asian creditor nations.
But with rising Chinese inflation and dramatic engineering failures, illustrated by the recent high speed train crash near Wenzhou, the West cannot look for China to drag the rest of the world out of decline, especially as many of their exports are being sold to the US where demand is still weak and, in reality, should be weaker.
There is some absolutely crucial difference between 2011 and 2008. We are further away from the peak of the capital goods cycle in 2008. Some companies, such as Boeing & Airbus have huge delivery backlogs, and Company balance sheets are very strong (Apple Inc. has more cash on deposit than the US government).
Companies have the firepower to invest and with cash earning so little, the best long decision is to keep investing for a long term future. OATS’s contribution to this is through investing additional resource in China, as well as in the UK, and we have recently added extensively to the PCMO database and will be doing the same for the HDDO sector.
In terms of lubricants demand, we must expect to see this mirroring GDP, which is currently fairly flat in the leading markets. This means that competition to hold market share will be the name of the game. Application of new technologies and methods to cut costs and improve marketing effectiveness will continue apace. We are seeing strong growth for improved web solutions, upgraded mobile services, I-phone and Android applications.
If you’d like to find out more about OATS’s latest database developments or offer comment or contributions to the OATS Bulletin, please contact us at bulletin@oats.co.uk.
Sebastian Crawshaw
Chairman