Macro­economic and Sector-Specific Environment

In its latest World Economic Outlook published on January 30, 2024, the International Monetary Fund (IMF) predicts that the global economic recovery will prove surprisingly resilient despite numerous crises, but the speed of the recovery will vary depending on the economy. Global gross domestic product (GDP) growth slowed from 3.5% in 2022 to a projection of 3.1% in 2023. Overall, economic activity remains below pre-pandemic levels. Major impediments to economic recovery are long-term consequences of the pandemic and geopolitical tensions as well as cyclical factors such as inflation and tightened monetary policy. The ongoing war in Ukraine and the resurgent conflict in the Middle East are weighing on the economic development by accelerating the geoeconomic fragmentation and hindering the flow of commodities, which could lead to food or energy price peaks.

Overall, the IMF expects global inflation to decline more than expected in 2023 but remained above target levels. The persistently high inflation rates prompted central banks to increase interest rates and high debt levels led to tighter fiscal policies in some countries. China’s property sector crisis still poses a risk as it could deepen and cause global spillovers.

The development of gross domestic product (GDP) in selected countries and regions was as follows:

The development of selected sector specific environments was as follows:

Life Science

Our Life Science business sector is one of the leading global suppliers of products, tools and services for research laboratories, pharma and biotech production, as well as industrial and testing laboratories. The convergence of several adverse developments (macroeconomics, capital constraints, declining Covid-19 pandemic demand, and high customer inventory) has challenged growth of life science companies compared with previous years.

Accordingly, the markets in which our Life Science business sector operates slowed down in 2023 compared with 2022. According to the market research firm Frost & Sullivan, the market for laboratory products, which is relevant to our Science & Lab Solutions business unit, declined by -5.6% in 2023 (2022: 4.2%). This decline is due to a challenging macroeconomic outlook (declining GDP growth and persistent inflation) and a sustained slowdown of investment in early stage biotech companies (according to Citi Research, venture capital and IPOs remain below pandemic highs).

Once capital markets stabilize, spending on laboratory products is likely to increase again. In the pharma and biotech production market, in which our Process Solutions and Life Science Services business units are active, demand is driven by the development and manufacture of therapeutics and vaccines. According to the pharmaceutical market research firm IQVIA, the end market for biopharmaceuticals grew by 16.9% in 2023 (2022: 14.5%) to € 496 billion (or 38.2% of the global pharmaceutical market). The number of monoclonal antibodies (mAbs) in phase I or II development grew by 17.4% (2022: 7.7%). While the biopharmaceutical market grew in 2023, laboratory consumables and materials used in manufacturing were pre-purchased to a significant extent in 2022, resulting in high inventories among our customers.

Healthcare

In its latest study from September, IQVIA forecasts growth of 9.2% in 2023 (2022: 7.8%) for the global overall pharmaceutical market. After the recovery from the Covid-19 pandemic, the pharmaceutical market is expected to see still high growth rates benefitting from accelerated approval pathways and increased access to innovative medicines globally. This is balanced by further increasing cost containment measures and policies driving biosimilar and generics uptake as well as stricter price reviews and prescription controls.

The developments at a regional level follow the described trend. EMEA (Europe, Middle East and Africa) grew by 9.2% in 2023 (2022: 8.2%) with the EU5 (Germany, France, UK, Italy, and Spain) growing by 7.8% (2022: 8.0%). North America grew by 10.2% (2022: 9.6%) with the United States growing at a rate of 10.3% (2022: 9.5%). In absolute terms, the pharmaceutical market in the United States remains the biggest and most important market by far. Latin America achieved double-digit growth of 19.2% (2022: 12.5%) impacted by high inflation. This is followed by the Asia-Pacific region (excluding China and Japan) with 8.2% growth (2022: 9.6%). Despite continued extension of price regulations (for example, volume-based procurement), China returned to growth with 4.3% in 2023 (2022: -0.8%) due to the lifting of Covid-19 pandemic measures, increased access to innovative products and growing healthcare infrastructure).

Not only the growth of the pharmaceutical sector as a whole, but also the market development for biotechnologically produced active ingredients is relevant to our business. According to IQVIA, these products accounted for 38.2% of the global pharmaceutical market in 2023 (2022: 35.8%), thus continuing the increase in market share of recent years. The most important market for biological pharmaceuticals remains the United States, with a 64.2% share of global biopharmaceutical market volumes.

The developments in the therapeutic areas of relevance to the Group saw differing trends in the reporting year. The global market for type 2 diabetes, excluding the United States, followed the growth trend of previous years and accelerated growth, achieving 19.1% in 2023 (2022: 18.1%). The therapeutic area of infertility grew 10.9% in the reporting year (2022: 4.2%). Colorectal cancer declined by -0.1% in 2023 (2022: increase of 4.5%) due to biosimilar penetration. The growth trend in the market for multiple sclerosis therapies declined slightly compared with previous year level by -2.3% (2022: 2.5%), as new product launches are counteracted by the effect of generic competition.

Electronics

The semiconductor industry is the most important market for our business with materials, solutions and services for the production of integrated circuits (Semiconductor Solutions). In particular, the growth in demand for semiconductor materials depends mainly on the wafer area produced for semiconductors. The silicon wafers required as raw materials are used as an indicator to estimate the demand for semiconductor materials overall.

According to the global industry association SEMI (forecast as of Q3 2023), the delivered silicon wafer area experienced a -14.1% decline in 2023, following moderate growth in 2022 (3.9%). The current cyclical industry downturn is amplified by macroeconomic challenges such as high interest rates and changing consumer buying behaviors with a preference for services. Semiconductor manufacturers have responded by reducing utilization rates to address excess inventory, resulting in declining demand for silicon wafers and related materials and services.

Despite the current downturn, we foresee a positive outlook for the Electronics business sector. We anticipate that the semiconductor market will regain momentum in 2024, driven by AI solutions, the Internet of Things, and the increase in data volumes related to big data.

With our Display Solutions business, we are a significant producer of liquid crystal mixtures and OLED materials for the display industry. After the Covid-19-pandemic-induced “stay at home boom,” the display industry underwent demand normalization in 2022. There are several indications that display market is slowly recovering after supply inventory adjustments. Due to sluggish demand in the fourth quarter of 2023, however, the market research company OMDIA (forecast as of Q3 2023) forecasted a slight decline in growth for 2023. In the medium to long term, liquid crystals will continue to play a key role in the display industry in the future. OLED technology, for which we have a strong position as material supplier, is becoming increasingly important in high-end display applications.

The markets for automotive coatings and cosmetics are crucial to our Surface Solutions business. According to the December 2023 report from GlobalData (formerly LMC), a leading global provider of automotive forecasts, global automobile production grew significantly by 10.1% in 2023 compared with growth of 7.1% in 2022. Underlying drivers include an unmet global demand, with China continuing to be one of the most important markets. According to Euromonitor’s report from October 2023, the market for cosmetics and care products grew more slowly in 2023 after a very strong development in 2022 with an overall growth of 4.2% in 2023 (2022: 12.2%).