The IMF recently released an updated forecast of global GDP growth for 2010. As many of you know, I’m fond of using the historical relationship between GDP and steel demand to forecast steel demand growth. In fact, last year about this time I provided a forecast of 2009 global steel demand using the latest available GDP forecast from the IMF.
For those of you wondering how well my simple model worked, I’m happy to report that it was close enough for consulting work. The analysis suggested that steel demand would fall by around 8% in 2009. While we don’t have a final demand number yet, we do have a preliminary number for 2009 world steel production from the World Steel Association. Their data suggests production fell 8% last year. Since global production and global demand should be pretty close, excepting inventory changes and interplanetary trade, my forecast of an 8% demand drop was not too bad, all things considered.
So what does 2010 hold in store? The IMF expects global GDP to grow by 3.9% this year, after falling 0.8% in 2009. This updated forecast is more optimistic than the 3.1% global growth the IMF expected when it released its World Economic Outlook in October 2009. Apparently, the IMF is increasingly convinced that the world economy has emerged from the recent crisis. If this forecast ends up being reasonably accurate, global steel demand should grow by 4% this year based on the historical relationship between the two variables. See the graph below.
Of course, this methodology is not perfect. The global GDP forecast provided by the IMF could be wrong. And since our simple model explains only 60% of the annual variation in steel demand growth, there’s additional room for error around the base line forecast. At the risk of tempting fate, I’ll deviate from the model and project that 2010 demand will grow by significantly more than 5% from the extremely depressed level of 2009. If I’m wrong, you know where to find me.