Prospects generally improving for the world pulp and paper industry in 2011

BEDFORD, MA, Feb. 14, 2011 (RISI) - The RISI outlook for the world pulp and paper industry in 2011 has brightened over the past three months. We are still looking for a slowdown in the pace of demand growth compared to 2010 but not by quite the same amount due mainly to better prospects for the general economy. Recent data on both the US and Chinese economies show accelerating growth, particularly in the industrial sectors. Within the pulp and paper industry, itself, perhaps the most encouraging sign of improving prospects is the upturn in softwood pulp prices, focused on the Chinese market, indicating that fiber demand is still expanding rapidly enough to keep these sensitive prices at elevated levels.

Better news on the US economy is probably the most important factor leading to an improved outlook for the world economy as a whole. Recently-released GDP data for the fourth quarter of 2010 show a further acceleration of growth from the low point reached in the second quarter. The data also show that the consumer, responsible for 70% of GDP, continues to emerge from the shell shock of falling asset values. The January purchasing managers index (PMI) registered the best overall figure since 2004, with the new orders segment registering a large increase. Housing remains mired at severely depressed levels but is apparently being offset by strength in other sectors. We are moving our forecast for US GDP growth toward 3% this year, up a full percentage point from several months ago.

Fourth-quarter 2010 data for the Chinese economy also showed an acceleration in growth despite continuing efforts on the part of the government to limit investment in the booming property sector. Industrial production posted a better performance in the latter part of 2010, based partially on record levels of exports. We are still looking for the Chinese economy to slow over the course of 2011 but only relative to the exceptional numbers registered in recent years. The modest slowdown will be generated by government actions to limit general inflation and a potential property asset bubble. Our forecast shows Chinese GDP expanding by 9% this year, or slightly slower than the 10.3% rate posted in 2010.

It still looks like western Europe will be the laggard in the world economic picture this year, with only 1.5% growth projected. Weak consumer expenditures, reflecting both high unemployment rates and unsettled financial conditions in peripheral economies, will continue to be a problem for the region. In addition, the euro has returned to levels that will tend to inhibit exports, even from the regional powerhouse, Germany. However, we may be too conservative in our assessment of the growth prospects for western Europe. Recent industrial production numbers have come in better than expected and the domestic German economy appears to still be in good shape, with exports being held up by continuing solid growth in the economies of major export markets.

This is an excerpt from a full story that is available in RISI's Pulp & Paper News Service

Rod Young, Chief Economic Advisor, works out of RISI's Bedford, MA, USA office, Tel: +1-781-734-8925 Email: ryoung@risi.com