The International Monetary Fund recently updated its global GDP growth forecast for 2009 and 2010. Not surprisingly, the growth projections were revised downward. So I thought I’d take the opportunity to update the graph showing the relationship between global GDP and steel demand and to refine the comments I made in a recent post using the previous IMF forecast.
As the graph makes clear, the IMF’s 2009 forecast of 0.5% global GDP growth is dire. In fact, 0.5% global growth would be the worst showing since 1950. (The graph shows data from 1950 to the present). If accurate, the IMF projection suggests global steel demand will fall by around 8% this year, not a pretty picture.
While on the topic of the relationship between GDP growth and steel demand, I also want to respond to a question posed by a reader in response to one of my previous posts on this subject. Gopal wants to know whether I’ve looked at the relationship between GDP growth and steel demand in the US and if so whether there is a positive correlation between the two. The answers are yes and yes, and the data appear in the following graph.
As you can see, the correlation is positive and the r-squared is quite strong at 0.62. I plugged in the IMF’s latest forecast for the US, which has GDP down 1.6% for 2009. The trend line suggests that steel demand in the US will fall by 15% to 20% this year.
Of course GDP is, by definition, a very broad measure of economic activity. If you really want to understand how steel demand in the US is likely to evolve over the next few years, we have found, not surprisingly, that automotive production and non-residential construction are more useful variables. But as they say, “that’s a whole ‘nother can of worms”.