Expansion in the European chemical industry will moderate in 2011 after double-digit year-on-year growth in 2010, industry group Cefic confirmed on Tuesday.

The European chemical trade group's annual summary forecast of chemical sector economists predicts growth of 2.5% next year. Cefic confirms its forecast made six months ago, that the EU chemicals sector will post a year-on-year recovery of 10% for 2010.

Cefic Director General Hubert Mandery said, "We maintain our view from earlier this year that the sharp chemicals rebound in 2009 and early 2010 was driven by inventory rebuilding, support measures, and exports. But chemicals output levels forecast for the end of 2011 will remain well below the peak levels reached in 2007."

Overseas demand has been the main driver of a rapid recovery in European chemicals output in 2010. Domestic demand, although much improved, remains short of pre-crisis levels. The latest data show the pace of growth in Europe slowing in 2010 as government economic stimulus fades and underlying demand takes over. Emerging markets continue to see strong growth rates.

Sources of uncertainty include sharp fiscal tightening by EU member states, very strong increases for several types of raw materials and fluctuations in the value of the euro. In non-EU countries, economic policies, including current U.S. monetary policy, could provoke asset bubble fears in other countries. If emerging economies including China curb their rapid growth, demand for European goods, including chemicals, would ease. But strong economic activity in Asia is currently driving up commodity prices, notably of oil, and destabilising price spikes are possible.

The European chemical industry has undertaken further streamlining of operations due to the severe recession. Growth in exports in the second quarter indicates these efforts have worked. Nevertheless, global competition remains fierce as Middle East capacity increases, the relentless expansion of Asian producers continues, and companies in the United States enjoy relatively cheap shale gas.

Cefic President Giorgio Squinzi said, "Companies have done their homework, have made adjustments and continue to grow output. In the first eight months of 2010 this enabled Europe‟s chemical industry to post a trade surplus of €32 billion and a €42.6 billion global trade surplus in 2009. The chemical industry has a central role in helping Europe to overcome the crisis and maintain a strong manufacturing basis. Today and tomorrow, the chemical industry must be the turbo in the engine of 'Made in Europe'.

"Competitive pressures, especially from overseas competitors, will make it more important than ever for policymakers to set the right framework conditions in Europe and to reduce unnecessary regulatory burdens, which would help European industry grow their businesses."