In Britain, London has played host to the 30th modern Olympic Games. From the spectacular (and wonderfully British) opening ceremony, to the dazzling musical finale, the UK welcomed athletes, officials, volunteers and spectators from around the world. The payback was two weeks of the finest sport and - from a purely selfish perspective - Great Britain's largest haul of gold medals for more than 100 years.
All of this has led to a tremendously positive mood in the UK, but has sadly been a short-term distraction from the world economic scene, where the hangover from excessive lending continues. This month marks the Fifth Anniversary of the start of the 2007 financial crisis. As we have often stated, financially induced recessions caused by over-borrowing take longer to resolve than demand-led recessions. So it is proving this time.
China seems to be facing a genuine deceleration. Exports are growing at “just” 10% compared with 20% a year ago. Chinese inflation is at its lowest level for two years. Commodity prices, especially pig-iron has fallen from $538 last August to $474 in June 2012, suggesting construction demand is easing off. All the key PMIs - China (49.3 Eurozone (46.4) and US (49.8) - indicate an expected contraction.
The US, despite quantitative easing, is seeing growth slip back towards two percent; a remarkable outcome in an election year when pump priming usually helps build some momentum. The UK is “flat-lining”, though the signals are very confusing as - in the same way as the US - employment levels are rising. This suggests that maybe, just maybe, the statistics are not actually accurate.
Each of these trading blocks are blaming the over-borrowed and disunited Eurozone, which seems stuck in a mire of indecision. The complexity of the bank bailout and risk reduction approach being taken by each of the Eurozone nations means that credit restrictions are continuing, causing restricted economic growth. While there appears to be a determination to maintain the Euro at all costs, the ultimate cost could be too great. Either the European Central Bank will enforce a European guarantee for both Banks and Countries, or the currency zone will splinter.
It is some hangover!
As lubricants follow GDP demand, we can expect lower and slower sales in the coming months, a fact already reflected in depressed Q2 figures for the majors. While stock markets are actually relatively buoyant, and the downstream and chemical suppliers showing more positive results, the feeling seems to be one of caution with only modest growth in some areas.
There are, however, some strong sectors. Changing technology is creating winners and losers: compare Apple and Samsung’s performance against Sony and HP. Adoption of leading web solutions will continue to yield benefits to those lubricants businesses wishing to control costs and enhance their marketing. Of course that is a key area of focus for the OATS team.
Whether working, resting or honing your sporting skills, enjoy the rest of the holiday season and let’s see what the Autumn business season brings. In the meantime, if you'd like more details about our online solutions or have any views on our monthly OATS Bulletin content, please contact us.
Sebastian Crawshaw
Chairman, OATS