We have two choices as we start this New Year – approach with fear and hesitancy or be guardedly optimistic and move forward. I choose the latter, as I think if we don’t show confidence we will spiral ourselves downward.

We have two choices as we start this New Year – approach with fear and hesitancy or be guardedly optimistic and move forward. I choose the latter, as I think if we don’t show confidence we will spiral ourselves downward. The following is a very brief summary taken from a presentation entitled “The Great Recession” made by Duncan Meldrum, Chief Economist, Air Products & Chemicals, Inc., at the Western Coatings Societies Symposium, October, 2009. He graciously allowed us to use his material; I have used his slides and hope I have not misconstrued his ideas or intent.

Mr. Meldrum described three phases of The Great Recession. Phase I – Euphoria, Crisis, Panic – describes how we got into the current situation. We had a period of extraordinary global growth driven by easy and cheap credit. Free market capitalism became the global standard in the 1990s; lower trade barriers, deregulation, increased competition for foreign direct investment, along with risk and interest rate declines led to a global boost to investment, both residential and nonresidential. A lower-inflation, lower-risk environment drove interest rates down, which led to tremendous credit expansion. As spending increased, consumer savings decreased. Housing markets started to soften in 2006 but it wasn’t until 2008, when Lehman Brothers declared bankruptcy, that fear and panic set in and consumer spending nosedived.

Phase II – Contraction – describes where we are today, i.e., in the worst global recession since the 1930s. Fear and panic have subsided, but demand is subdued and lending standards are extremely tight. There is excessive physical capital for the lower demand and so we are now in a long adjustment period to repair and rebalance the global economic system. Investor confidence is recovering; consumer confidence, while up and down, is well above where it was a year ago and consumers are saving more. We are now just past the bottom of a global contraction in consumer spending and production.

Phase III – Recovery – describes our view forward, and recovery IS coming. Recovery drivers are monetary policies, stimulus packages, relatively low commodity prices, end of inventory correction cycle and pent up demand that will eventually be satisfied. In mid-2009, manufacturing output hit a low equal to 2001, but it is slowly rising and projected to increase. The Great Recession brought markets back to 80s levels, and recovery doesn’t really get going until late 2010. He sees a long, slow recovery in production in most regions and industries, along with a long, slow recovery in investment and employment. This implies a difficult period for coatings markets.

There are risks to the economic outlook. Weak confidence, which can override stimuli, as well as policy errors can cause a double-dip recession. Inflation is certainly a major concern as well as increased roles and responsibilities of existing or created institutions.

In summary, Mr. Meldrum noted the following key points. First, that there will be a very slow recovery in economic activity. Investment recovery will likely occur after 2012. Secondly, that pricing and currencies are volatile; currencies generally stronger vs. the U.S. dollar. While oil/energy prices are off their lows, we can expect swings. Thirdly he notes that regional differences may be sharp. Asia continues growth, led by China and India with Japan lagging. North America will show modest gains on relatively weaker consumer spending, with Europe showing protracted weakness.

Needless to say, all of the above is predicated on our having no major catastrophic events occur anywhere in the world – I pray for peace and prosperity for all.