Plastics News - Show Daily - October 17, 2023 - 9

FAKUMA SHOW DAILY
Plastics News, October 17, 2023 * 9
'Numbers That Matter' by Bill Wood appears in
Plastics News monthly. It takes a close look at
data and trends to help plastics company managers
forecast next quarter and next year.
Europe faces challenging
economic conditions
W
ith the fourth quarter
of 2023 underway, the
eurozone economy
feels like it is teetering.
It is too early to say the entire
economy is in a recession, but
certain sectors are either already
in contraction or very near to being
in contraction.
There was suffi cient growth
in the fi rst half of 2023 to ensure
the annual average for the overall
economy this year will register
positive growth, but the data is
getting weaker as the year progresses.
This weakness will carry
into the fi rst half of 2024. The
forecast currently calls for a rise
in real GDP of 0.5 percent in the
euro area in 2023, and this will be
followed by a gain of just under
1.0 percent in 2024.
Of particular importance to manufacturers
and suppliers in the
plastics industry is the fact that the
goods producing sector of the eurozone
economy is in contraction.
The activity in the services sector
is currently keeping the overall
growth rate for the economy positive,
but it is increasingly clear that
the pace of growth in the services
sector is also decelerating.
While it is obvious the reason
for the current trend of deceleration
in the economic activity
is the sharp increase in interest
rates in recent quarters, there is
an uncomfortable amount of uncertainty
about what will happen
during the next two or three quarters.
This uncertainty is clearly
indicated in recent survey indicators
from the eurozone.
The European Central Bank
hiked interest rates 25 basis
points last month and left open
the possibility that it will raise interest
rates further if the infl ation
data should warrant another hike.
But given the most recent economic
data, the most likely scenario
is the hiking cycle is over.
The problem for the ECB -
and also the Federal Reserve in
the United States - is estimating
the length and the impact of
the lag time between when they
raise interest rates and when
these increased rates start to
have their full effect on the economy.
Compounding this problem
is the fact that this lag time as
well as the severity of the impact
associated with the rate
hikes varies greatly from sector
to sector within the economy.
The services sector of the economy
is currently exhibiting the
greatest resilience to the effects
of the rising interest rates. This
Euro Area Outlook
Annual percent change
2022
Real GDP
Consumer spending
Government spending
Investment
Exports
Imports
Rate of infl ation
Unemployment rate
(percent of labor force)
is also the sector that is putting
the greatest amount of upward
pressure on the price data. In other
words, the services sector is
showing a relatively low level of
sensitivity to rising interest rates,
at least so far. Based on data only
from the services sector this year,
a case for yet higher interest
rates seems plausible. However,
the last data point for the rate of
infl ation for the services sector
represented a faster pace of deceleration
than expected. If this
trend continues, then the need for
further rate hikes will be nullifi ed.
The story is markedly different
for the goods producing sectors
of the economy, which are
showing high levels of sensitivity
to the rising interest rates. The
manufacturing sector is already
3.4
4.1
1.5
2.9
7.3
8.1
8.4
6.7
2023
0.5
0.2
0.0
1.5
1.1
0.3
5.5
6.5
Sources: European Central Bank, Mountaintop Economics & Research Inc.
put the manufacturing
in contraction, and the price data
for most goods is trending fl at
to down in recent quarters. The
recent manufacturing data indicates
that a near-term rate cut
should strongly be considered.
The main reason for these diverging
narratives is the rising
cost of labor. Wages have risen
across all sectors of the economy,
but labor inputs typically have a
greater effect on the services sector.
Ultimately, rising wages and
lower infl ation will give consumers
more discretionary income,
which they will then be able to
spend on greater amounts of both
goods and services.
This bodes well for the longer-term
outlook for the euro area
economy. But for now, rising wages
and higher interest rates have
sector
under strain. It will likely take at
least two or three quarters before
these factors return to a healthy
equilibrium.
One fi nal factor affecting the
outlook for the eurozone is the
continued slowdown in global
trade. A stronger-than-expected
resilience in the U.S. economy -
and a corresponding rise in the
value of the dollar vis-à-vis the
euro - will be mitigated by lower-than-expected
growth in China.
Overall, global trade activity will
remain at or near a cyclical low
point for a quarter or two longer
but should then start to improve
by the second half of 2024.
Summing it all up, economic
conditions will remain challenging
for eurozone manufacturers in the
2024
0.9
1.5
1.0
-0.7
2.1
1.3
3.0
6.8
near term. Growth will be stagnant
at best, both domesti cally and
globally. This situation for plastics
manufacturers will be exacerbated
by the market deselection of many
types of plastics products, especially
in the packaging segment.
In the long term, I believe there
will be huge opportunities for the
plastics industry. I am confi dent
we can all get to a future that is
sustainable and circular with a rising
standard of living for everyone,
and I am certain the bridge to that
future is built mostly of plastic.
All we need to do is redesign,
refocus and rebrand the plastics
industry. We have to reinvent
ourselves. The market will zealously
embrace this reinvention
because the need is great and
getting bigger every day.

Plastics News - Show Daily - October 17, 2023

Table of Contents for the Digital Edition of Plastics News - Show Daily - October 17, 2023

Plastics News - Show Daily - October 17, 2023 - 1
Plastics News - Show Daily - October 17, 2023 - 2
Plastics News - Show Daily - October 17, 2023 - 3
Plastics News - Show Daily - October 17, 2023 - 4
Plastics News - Show Daily - October 17, 2023 - 5
Plastics News - Show Daily - October 17, 2023 - 6
Plastics News - Show Daily - October 17, 2023 - 7
Plastics News - Show Daily - October 17, 2023 - 8
Plastics News - Show Daily - October 17, 2023 - 9
Plastics News - Show Daily - October 17, 2023 - 10
Plastics News - Show Daily - October 17, 2023 - 11
Plastics News - Show Daily - October 17, 2023 - 12
Plastics News - Show Daily - October 17, 2023 - 13
Plastics News - Show Daily - October 17, 2023 - 14
Plastics News - Show Daily - October 17, 2023 - 15
Plastics News - Show Daily - October 17, 2023 - 16
Plastics News - Show Daily - October 17, 2023 - 17
Plastics News - Show Daily - October 17, 2023 - 18
Plastics News - Show Daily - October 17, 2023 - 19
Plastics News - Show Daily - October 17, 2023 - 20
Plastics News - Show Daily - October 17, 2023 - 21
Plastics News - Show Daily - October 17, 2023 - 22
Plastics News - Show Daily - October 17, 2023 - 23
Plastics News - Show Daily - October 17, 2023 - 24
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