General Economic Situation
2022 was a turbulent year for the global economy. In particular, geopolitical and economic events created a volatile macroeconomy. While the easing of COVID-19 restrictions at the beginning of the year initially improved the economic situation, optimism quickly subsided again due to the Russian invasion of Ukraine. In summary, the year was marked by a stronger-than-expected economic downturn. This was caused by inflation reaching heights not seen for several decades and interacting with an imbalance of supply and demand. Central banks responded by tightening the monetary policy reins and hiking interest rates. Global inflation rises therefore slowed in the second half of the year, but this came at the price of a more difficult financing environment in many regions. In addition, shortages on labor markets, combined with a loss in purchasing power, put pressure on wage and salary structures. The supply chain problems continued to act as a brake on the global economy in 2022; however, the supply chain situation improved somewhat toward the end of the year.
The European economy was particularly affected by the impacts of the Ukraine war in 2022. In economic terms, the Russian invasion resulted in uncertainty around gas supplies and a dramatic rise in energy prices in the eurozone. The energy price situation was also linked to a dramatic rise in the inflation rate, which translated into higher consumer prices. This meant that European consumer spending was low. The service sector was particularly affected by consumer restraint. Industry in the eurozone was additionally hit by the continuing supply chain problems. In particular, a shortage of intermediate products hit the output of European industry. In response to the high rate of inflation, the European Central Bank (ECB) began to hike key interest rates starting from the middle of the year. The difficult financing environment began to make its mark in interest rate-sensitive markets such as real estate and resulted in falling property prices in the eurozone.
As part of the world economy, the German economy was also hit by numerous factors in 2022. Dramatic inflation rates, supply shortages, and uncertainty following the Russian invasion of Ukraine put the brakes on economic activity. While Germany’s exports suffered, its import spending rose, driven by expensive energy imports from abroad. However, the relief packages adopted by the German government largely offset the rising cost of imported energy, at least in mathematical terms. Higher interest rates to tackle inflation resulted in a fall in residential property prices in Germany starting from the middle of the year. Manufacturing output rose slightly, and the supply chain problems also eased somewhat toward the end of the year. While the supply situation differs from industry to industry, chemical plants, for example, are again finding it easier to access raw materials and intermediate products.
The United States started 2022 with negative economic growth, which continued until the middle of the year. In June, inflation reached its highest level for four decades. The Federal Reserve responded throughout the year with sharp interest rate hikes. Inflation slowed as a result; however, it still remained at a high level. Interest rate-sensitive markets such as the real estate sector responded quickly to the rate hikes. From June 2022, this triggered a fall in US property prices. Other sectors were robust to the more restrictive monetary policy of the Federal Reserve. This is partly explained by the release of high pent-up demand in the second half of the year and was also helped by the easing of supply shortages caused by the COVID-19 measures. The automotive sector was a noteworthy example. Overall, after a difficult start to 2022, the US economy recovered in the second half of the year.
Japan was also affected by the global economic situation and faced rising inflation and elevated import and energy costs. This resulted in a slowdown in growth in 2022. Toward the end of the year, however, an upturn in consumer spending was seen. Demand for services, in particular, rose again. The upturn was linked to the reopening of the border and an easing supply chain situation. At the same time, the Bank of Japan decided for the first time in over two decades to move away from its loose monetary policy and raised yields on long-term Japanese bonds.
Although the emerging markets recovered economically from the pandemic, the difficult global economic context put them under pressure again. China’s economy was kept stable overall by capital investment in infrastructure and manufacturing. Consumer spending, meanwhile, remained at a reduced level due to the zero-Covid policy. With the difficult global economic situation reducing demand from abroad, the Chinese economy lost an important growth driver. The Middle East economies enjoyed the highest growth rate since 2016. This was largely due to high oil prices; however, growth was also generated in non-oil-extracting sectors. In India exports declined significantly relative to imports. Sales fell across the economy, as demand for both durable and non-durable consumer goods was well below the pre-pandemic level. However, industrial output remains on a par with pre-COVID-19 times. In the Southeast Asian emerging markets, inflation peaked at the end of 2022. Border reopenings enabled an economic recovery, especially in the contact-intensive service sector. The economic situation in Brazil was marked by uncertainty. The debate about a change in the constitution, which would enable government spending to exceed the existing cap, triggered a sharp rise in market prices. The uncertainty was further amplified by the lack of appointments to key government posts, including that of finance minister. The Russian economy was dominated by the impacts of the Russian invasion of Ukraine in February 2022. According to information from the European Union – based on independent analyses by the World Bank, the International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD) – the sanctions imposed were effective. The Russian economy shrank, and trade declined. High inflation rates complicated the economic environment in Russia, too. Economic activity was also hit by the partial mobilization of the Russian population for the war in Ukraine. Wage inflation and increased momentum in services were also observed. Overall, Russia ended the fiscal year with a declining GDP.
Sales Market Trends
The global market environment in 2022 was highly volatile and challenging. Since the outbreak of Russia’s war against Ukraine, markets have been confronted with increased commodity prices and substantial supply shortages in energy markets. In many countries, the combination of increased commodity prices and sustained currency depreciation resulted in higher inflation combined with growing fear of recession. The global cosmetics market saw growth despite the volatile environment and challenging circumstances and returned to the levels seen before COVID-19. In particular, the SUN, Lip, and Deo categories achieved year-on-year growth, as did all regions with the exception of Northeast Asia.
The tesa subsidiary’s business activities were characterized by high uncertainty in 2022. Hard lockdown measures in the People’s Republic of China due to the COVID-19 pandemic temporarily weakened the local market, as did the ongoing disruption to global supply chains. The Ukraine war led to a significant increase in energy prices. The continued lack of availability of semiconductors and other industrial materials also contributed to high inflation. However, industrial sales markets proved highly robust in this environment. Global automotive markets in particular saw noticeable year-on-year growth, especially compared with the weaker second half of 2021. There were differences in the impact on distribution to end consumers and industry. While traditional retail rallied since it was now only slightly affected by COVID-19 restrictions, growth in online retail slowed noticeably.
Procurement Market Trends
The year 2022 was marked by continuous supply shortages and significant inflation on most commodity, packaging, and logistics markets. This was partly due to COVID-19-related capacity restrictions affecting many producers and entire supplier countries such as China. In addition to this, energy costs, which had already risen in 2021, were lifted to new heights by the Ukraine war, resulting in a strong increase in production costs for our suppliers.
All this meant that prices for raw materials, packaging, and logistics services were substantially up on the previous year’s levels, particularly in the second half of 2022. Our focused, cross-departmental management of supply shortages and preferential position with key suppliers enabled us to limit the negative impact of supply difficulties on our production sites and retail partners.
Overall Assessment of the Economic Environment
The global cosmetics market developed positively in 2022 despite the continued high volatility in the world economy. The main reasons for this included the widespread normalization of everyday life following the restrictions due to the pandemic in the previous years. Both Skin Care and Personal Care (soaps, shower gels) produced strong growth. The focus in the Consumer Business Segment was on Skin Care, in which we made major investment. All Skin Care subcategories achieved growth in 2022 and largely posted strong gains in market share.
In the tesa Business Segment, considerable impacts of the COVID-19 pandemic continued to make themselves felt in 2022 through the still difficult situation in global value chains. In addition, the outbreak of the Ukraine war meant a marked increase in prices for raw materials, logistics, and energy. Despite difficult circumstances, tesa increased sales in both divisions Industry and Consumer, including through necessary price rises.