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The global economy appears to have passed the bottom of the cycle. We expect the positive trend to continue through the end of the year. However, the overall economy is still being bolstered primarily by government stimulus programs. For 2009 as a whole, the global economy will show considerable shrinkage from the previous year.
We anticipate moderate growth in the pharmaceutical market for the full year 2009. Contrary to earlier forecasts, we expect the U.S. pharmaceutical industry to expand by a mid-single-digit percentage in light of the more positive market trend in the first months of the year. We believe that growth in the major European countries and in Japan will be restrained, while the industry should continue growing strongly in the emerging markets. We take a positive view of the consumer health markets as a whole, although they will expand rather more slowly due to the deterioration in the global economy compared with the previous year.
Following its favorable development in the first half of 2009, the global seed and crop protection market trended weaker in the third quarter because of adverse weather patterns, declining producer prices and higher trade inventories of crop protection products. We therefore predict slight overall market shrinkage in 2009 compared with the record year 2008.
Business activities in the main customer industries of MaterialScience (automotive, construction, furniture, electronics) are trending very differently from one region to another. While the Asian market is recovering more quickly from the sharp drop in sales at the beginning of the year thanks to massive stimulus programs and will likely regain its former pace of growth, demand in North America and western Europe remains well below the overall level of 2008.
At mid-year, the global economy remains in crisis. According to the most recent indicators, however, the bottom of the economic cycle has probably been reached. Expectations for the coming months have improved among both companies and consumers.
We continue to anticipate a moderate expansion of the pharmaceutical market over the year as a whole, but with growth continuing to slow in the United States and the major European countries. By contrast, growth in the emerging markets should be only slightly restrained. While development of the consumer health markets is likely to be somewhat hampered by the overall economic situation, the basically positive climate in this sector should continue.
We expect the global crop protection and seed market to develop positively, albeit at markedly lower rates than in the record year 2008. Unfavorable weather patterns in some major growing areas in the first half of 2009 contributed to the slower pace of expansion. However, farmers in general should continue to benefit from attractive prices for plant-based raw materials compared to the long-term average, as well as from low energy and fertilizer costs than in the previous year.
Despite extensive stimulus packages launched by governments around the world, the main customer industries of MaterialScience (automotive, construction, furniture, electronics) continue to operate in a difficult environment. Although there are signs that the bottom of the cycle has been reached, the recovery is likely to take some time. Any notable expansion of production in our customer industries depends primarily on a sustained increase in general consumer confidence and investment activity.
The global economy is in a deep recession, and we do not yet see any sign of a sustained economic recovery.
We now anticipate only moderate growth of about 3% in the pharmaceutical market in 2009. While there is a loss of momentum in the United States and the major European countries, the emerging markets continue to show steady growth. We basically anticipate a continuing positive trend in the consumer health markets, although 2009 will be adversely affected by the general state of the economy.
We expect the global seed and crop protection market to continue its positive development, albeit with markedly lower growth rates than in 2008. Farmers in general should continue to benefit from attractive prices for plant-based raw materials compared to the long-term average, as well as from low energy and fertilizer costs.
With the global economic crisis likely to continue weighing heavily on the main customer industries of MaterialScience – the automotive, construction, electrical and furniture sectors – in the coming months, we expect a very difficult market environment for this subgroup in 2009 as a whole.
The prospects for global economic development in 2009 are very uncertain. Business confidence indicators have fallen worldwide, in some cases reaching all-time lows. In view of the many negative factors, we expect the global economy to remain fragile for some time. The sharp downturn in the United States and western Europe is likely to have a substantial impact. While growth is expected to continue in the emerging markets, it will be distinctly weaker than in previous years. It is currently impossible to predict what effects the extensive government measures aimed at stabilizing the financial markets and bolstering the business environment will have on the global economy. We anticipate a significant weakening of global economic growth in 2009, with only very slow expansion at best.
HealthCare
In 2009 we expect the pharmaceutical market to grow more slowly than in 2008 by a low single-digit percentage. This enlargement will probably be driven increasingly by countries such as China, Brazil, Mexico, South Korea, India, Turkey and Russia. By contrast, we predict restrained growth in the traditional markets – the United States and the major European countries – due to the expiration of patents for leading products, the drop in new product launches and increasing cost pressure exerted by health institutions. The difficult overall economic environment will probably have a negative impact on the pharmaceutical market as well, particularly in countries where patients bear a large proportion of the costs.
We expect the global consumer care market to go on expanding, albeit at a slower pace in 2009 than in 2008. The animal health market as a whole is likely to show moderate growth in 2009.
CropScience
In 2009 we expect a continued positive trend for the global seed and crop protection market, although growth rates are likely to be lower than in 2008. Although prices for the most important agricultural commodities have fallen again in recent months, they remain well above the level of two years ago. Demand for plant-based food and feed products on the world markets should remain at a comparatively high level, while inventories are forecasted to remain correspondingly low. We therefore expect an ongoing increase in production for important crops such as cereals, corn, canola, soybeans and rice, which in turn would preserve the favorable business environment for seeds and crop protection products. Although the agricultural industry is generally quite robust in the face of cyclical fluctuations, the ongoing financial crisis poses a certain risk for the crop protection market in countries where agricultural production is financed by the banking sector.
MaterialScience
Automakers have significantly lowered their production forecasts for 2009 after a slump in sales. For the first time the decline is likely also to affect the Asia/Pacific and eastern Europe regions, which have registered solid growth in recent years. We anticipate stagnation in eastern Europe and a slight decline in the Far East attributable largely to the Japanese market. The global crisis is expected to impact mainly the export-driven auto markets such as Germany, Japan and South Korea. Governments are enacting stimulus packages – including some to promote new car registrations – to set off a recovery in demand. Nonetheless, there are concerns about bankruptcies among car dealerships and automotive industry suppliers worldwide. A recovery is not expected until 2010 at the earliest.
For the construction industry, we do not foresee a significant recovery from the effects of the global financial and economic crisis during 2009. Investment in residential construction in the United States is expected to be at a low level. Incipient weakness in the remainder of the construction industry means building investment as a whole is unlikely to recover before 2010. In western Europe, too, we believe the current economic situation will continue to have negative repercussions in 2009, causing a significant drop in investment in the construction industry. In regions that so far have experienced strong growth rates – such as eastern Europe, the Middle East and Asia/Pacific – we anticipate much lower growth than originally forecast. On a global level, these assumptions signify slightly negative growth in 2009.
A slight decrease in global growth is predicted for the electrical and electronics sector in 2009, though the extent of the decline will depend on the further effects of the economic crisis. There are generally major regional and sub-regional differences. The demand for electronics and information technology in the emerging countries continues unabated. However, further adverse effects of the economic crisis could have negative implications for individual sectors within the electrical and electronics industry, putting manufacturers in difficult positions. Competition remains strong throughout the world, with prices greatly under pressure.
Sales forecasts for the furniture industry in 2009 are very much determined by the effects and the intensity of the global economic crisis. In the United States especially, it is presumed that demand will drop steeply against a background of considerably dampened consumer confidence. The global economic downswing could also impact furniture producers in Europe (Italy, Germany, Poland) and Asia (China, Vietnam, Malaysia), where lower exports probably will not be compensated by higher domestic demand. A significant recovery in the global furniture market is not anticipated until 2010 at the earliest.
Global economy
The global economy weakened increasingly during 2008. Major factors contributing to the decline were the sharp increases in commodity prices in the first half of the year and the severe real-estate crisis in the United States. Market prices for the petrochemical raw materials relevant to our business reached an all-time high in the summer but showed a distinct turnaround in the second half.
The global financial crisis worsened as the year went on, accelerating the global economic downtrend. The economy of the Unites States remained reasonably robust in the first half thanks to monetary countermeasures adopted in the form of sharp cuts in interest rates. After that, however, the U.S. economy weakened considerably. In Europe, too, the downturn intensified as the year went on, plunging some countries into recession. Yet in many emerging markets, particularly the so-called BRIC countries (Brazil, Russia, India and China), growth initially continued almost unabated thanks to robust domestic demand. There too, however, economic growth slowed increasingly toward year end.
HealthCare
In 2008 the market for prescription medicines posted stable growth in the mid-single digits. The importance of specialty pharmaceuticals continued to increase and, as in previous years, there were further regional shifts. Pharmaceutical markets continued to expand in the emerging countries, where health services are becoming more broadly available and the demand for the treatment of chronic diseases is growing. By contrast, there were signs of slower market expansion in the United States and the major European countries. This was due partly to the fact that leading drugs in major therapeutic areas such as cardiovascular care have come off patent, with generic products increasingly capturing market share as a result. In addition, growth in western Europe in particular was hampered by health policy factors that drove more rigorous cost containment and limited access to certain types of treatment.
The global consumer care market again experienced solid growth, to which all regions contributed. Market expansion was above the average in Latin America, eastern Europe and the Asia/Pacific region except for Japan. The animal health environment was again favorable, with firm growth in most areas following a record year in 2007. In the majority of the industrialized countries the companion animal market made a strong contribution to the positive market development.
CropScience
The global seed and crop protection market benefited in 2008 from very favorable conditions on the world agricultural markets. Market prices for the principal plant-based raw materials reached an all-time high in the first half of the year, boosting crop production and the related demand for crop protection products worldwide. The higher prices for agricultural inputs in general enabled prices to be raised for crop protection products as well. Climatic conditions in the most important growing regions were also favorable. In this environment, the crop protection market registered double-digit growth rates in all the major regions. This performance was particularly positive in Latin America, where growth was driven primarily by higher farm incomes in Brazil. Crop production and the related demand for crop protection products also intensified in eastern Europe, especially in Russia and Ukraine. The suspension of mandatory fallowing practices in the European Union benefited the cereals sector in particular. In North America, crop protection products were used increasingly to improve yields. The market situation in the Asia/Pacific region varied from one country to another. While the agricultural economy in Australia benefited from considerably higher precipitation and the Chinese and Indian markets also developed favorably, Japan continued to show a slight downward trend.
MaterialScience
The business environment for the automotive industry deteriorated sharply in 2008, especially in the second half of the year. Experts believe the entire industry is facing its most difficult period in decades. Global manufacturers saw sales drop more sharply each month. Most manufacturers responded to this very difficult situation with temporary shutdowns or worktime reductions or by shedding contract workers. This directly impacted the automotive supply industry and the car retail trade in the fourth quarter.
The real-estate and financial crisis also had a significant effect on the construction industry, where global investment was slightly down compared with 2007. This was due to the dramatic decline in the United States and to distinctly negative developments in major western European countries (Spain, United Kingdom, Italy). These factors were partially offset by what was still a robust situation in eastern Europe, the Middle East and Asia/Pacific.
In contrast to many other sectors, the electronics industry maintained growth in the mid-single digits in 2008, again driven by Asia and eastern Europe. Highly developed technologies (such as renewable energies) and strong exports to eastern Europe and China led to moderate growth in the western European electronics industry, while the sector’s performance in North America was impaired by the economic crisis.
The furniture industry had to contend with increasingly difficult business conditions worldwide. The uncertainty created by the real-estate and financial crisis also made consumers somewhat reticent about buying furniture. This trend particularly affected manufacturers in North America, although companies in western Europe and Asia also had to contend with a drop in demand.
