Economic Outlook and Market Opportunities

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.

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.

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.

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.