Recession impacts on chemical companies

Impacts of the Economic Downturn on the Chemical Industry

The chemical industry has experienced remarkable growth and achieved many significant milestones. In reality, chemicals play a crucial role across numerous sectors—from the production of everyday items such as raincoats and plastic sandals to advanced materials used in energy, aerospace, and missile technology. It is evident that the chemical industry is essential and in high demand. However, economic downturns continue to exert considerable pressure on chemical companies in Vietnam.

The decline of the chemical industry can be interpreted differently depending on perspectives from various economic schools of thought.

Macroeconomic perspective

In macroeconomics, “a recession in the chemical industry is defined as a decline in the volume of chemical production within a country, or negative growth for two or more consecutive quarters within a year.”

Global Impact on the Chemical Industry

A severe and prolonged downturn is considered a chemical industry crisis. The collapse that devastates the sector is often described as a bursting of the chemical industry bubble, placing a heavy burden on chemical enterprises. When multiple countries simultaneously experience declines in chemical production, this results in a global chemical recession.
Although Vietnam is affected, the overall impact remains relatively moderate compared to other major markets.

Key Characteristics of a Chemical Industry Downturn

1. Decline in consumption and surge in inventory

Demand for chemicals and durable goods drops sharply, causing inventories to rise unexpectedly. Manufacturers respond by cutting production, reducing investment in equipment and facilities, ultimately leading to a significant decrease in actual output.

2. Reduced labor demand

Working hours for employees are reduced first, followed by layoffs and rising unemployment as companies scale down operations.

3. Slower inflation

When production decreases, inflation tends to ease because the demand for chemical production inputs falls. Service prices rarely drop but also do not rise rapidly during a recession.

4. Declining profits and falling stock prices

Corporate profits shrink, and stock prices typically fall as investors anticipate the downward phase of the business cycle. Lower demand for capital also drives interest rates down during recessions.

Conclusion

The global economic downturn significantly affects chemical companies worldwide, including those in Vietnam. Adjustments in pricing policies and supportive government measures can help enterprises stabilize production, boost exports, accelerate product consumption, and improve overall manufacturing quality.