2010 and 2011 GDP and steel demand growth

by Tony Taccone on August 11, 2010

in Articles

The IMF recently updated its forecast for world GDP growth in the latest World Economic Outlook.  The global economy is projected to grow at 4.6% this year and 4.3% next year.  If you look at the historical relationship between world GDP growth and world steel demand growth, the IMF forecast would lead one to expect steel demand to grow by 5-6% this year and next.

This seems low to me.  Through June of this year, world crude steel production is almost 30% higher than it was thru June last year.  Even if the global economy slows down in the second half of 2010, it seems unlikely that demand will grow by only 5% on the year.

Why is the model failing? I think its because the structure of global GDP is changing.  As developing economies account for a greater proportion of global GDP growth, their greater steel intensity will cause steel demand to grow faster than the historical relationship suggests.  So while the GDP/steel demand relationship is a useful heuristic, be careful of using it too directly.