The plastics processors, resins suppliers and machinery manufacturers that do business in developing nations will encounter better market conditions in 2017 than they have had during the past couple of years.
By definition, developing economies tend to experience volatile business cycles, so timing your investment is critical. The leading indicators are currently progressing through the early-recovery phase of the business cycle, so 2017 may be an auspicious time to initiate your investment strategies in the emerging market countries.
This forecast is based on expectations of continued gradual improvement in global market demand, particularly from the advanced economies of the U.S. and Europe. The growth in the advanced economies will proceed at a moderate rate by historical standards, but it will be sufficient to stimulate demand for industrial and energy-related commodities. This incremental rise in market demand will halt, and possibly even reverse, the downtrend in the prices for these commodities, and it will allow the countries that rely on these commodities to rebalance their production and inventory levels. These are the conditions that define the early-recovery stage of the commodities-investment cycle.
The steady growth in global demand should also be sufficient to stabilize the ongoing transition in China from an export-driven economy to one that is based on domestic consumption of both goods and services. The economic growth rate in China has decelerated in recent years, and in the first half of 2016, there were fears that a hard-landing was imminent.
A serious economic slowdown in China would not only affect Chinese demand for manufactured goods from Europe, but also it would be a big problem for the developing nations that have a large exposure to Chinese demand for commodities.
For the near-term, it appears that these fears have been allayed, and the best description of the deceleration in Chinese GDP growth is “soft-patch” rather than “hard landing.” However, it must still be acknowledged that the transition in the Chinese economy may hit a few bumps in the coming years.
In the near-term, the Chinese government has provided enough stimulus to ensure economic growth of greater than 6 percent in 2017. After that, it remains to be seen if the government's allocation (or misallocation) of resources will result in a smooth process of transition and stable growth over the medium and long term.