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BMI View: Germany's petrochemicals industry will be hit by the impact of Brexit due to its reliance on
export-oriented industries, particularly the automotive sector, as well as its role as a major petrochemicals
supplier in Europe. The sector was already seeing a downturn in sales volumes before the UK's vote to
leave the EU, suggesting existing weaknesses in the economy are likely to be exacerbated by the uncertainty
caused by Brexit. However, we expect that the effects will be short-lived and that a 'new normal' will arise
when uncertainty dissipates. German petrochemicals producers are in a stronger position than their peers
to weather the storm, and growth will rebound from 2017.
The German chemicals industry has witnessed a strong downturn in activity in recent months, indicating
that it was already under pressure before the surprise vote for Brexit in the UK. In H116, German
petrochemicals output declined by a marginal 0.2%, indicating the industry was in a period of stagnation.
However, with prices down 2.0% year-on-year (y-o-y), domestic chemicals sales fell 4.0% and chemicals
exports declined 3.5%,
The weak and volatile external demand picture is compounded by a longer-term trend of eroding export
competitiveness, which is starting to make itself felt in the country's key industrial sector. While Germany
remains relatively competitive compared with its eurozone peers, the economy has lost significant price
competitiveness against non-eurozone industrial economies since mid-2012. With the eurozone taking most
of Germany's chemicals exports, it will play a crucial role in the sector's performance. A positive outlook
earlier in the year eroded as doubts emerged over the sustainability of the recovery. On the upside, the
German chemicals and petrochemicals industries are in a better position to compete, both due to the
efficiency of production and the level of specialisation and added value.
? For 2016, BMI has downgraded its forecast for chemical output growth from 1.0% to 0.5%. However,
producer prices are anticipated to fall by 2.0% and sales will decline by a similar amount to EUR185bn.
? Germany will feel the impact of Brexit via weaker export growth and reduced private sector confidence
as European political and economic risks rise, and we have revised down our real GDP growth forecasts
for the country.
? Germany's domestic demand story will still remain robust, with household consumption and residential
construction growing strongly in the next few years, although the export-oriented automotive industry -
which relies on petrochemicals for a third of its raw materials - will suffer a downturn. As such, the risks
are balanced, even though there is some short-term uncertainty, and consequently we do not consider any
major reduction in petrochemicals capacity.