Report on Expected Developments
Expected Macroeconomic Developments
As in the preceding years, the global economy will be subject to high levels of uncertainty again in 2023. A particular risk to the world economy in the year ahead is posed by the potential for political conflicts. Russia’s war against Ukraine is already having a negative global economic impact, and it is unclear how this conflict will develop. There is therefore a possibility that the already difficult economic situation could worsen further. Continued tightening of monetary policy is expected around the world. This signals a global recession. However, the downturn is expected to be mild and is unlikely to cause an economic collapse. If the US Federal Reserve and European Central Bank respond to declining inflation by ending the cycle of rising interest rates in the spring, bond yields will fall again. A positive development is China’s move away from the zero-Covid policy. Problems in relation to supply chains are likely to ease further.
While continued high inflation and interest rate hikes by the European Central Bank are expected to lead to a mild recession in Europe, a deep downturn is unlikely. This is partly because the gas supply, as a key source of energy, appears secure. There will also be government policies designed to help businesses and the public. The easing of supply chain problems will enable the European economy to work through order backlogs. All these factors will mitigate the difficult economic environment. Nevertheless, consumer spending, capital investment, and imports and exports will decline compared with the previous years. Rising pressure on wages and salaries is also expected, as unions will seek to negotiate inflation-proof wage settlements.
In Germany, a decline in gross domestic product and a single-digit rate of inflation are predicted for 2023. Energy prices are expected to fall again over the coming year, meaning it will now be food rather than energy costs that are the main driver of inflation. It is also likely that manufacturers have not yet fully passed on higher production costs to consumers, which means further jumps in prices can be expected for 2023. The typical lag in the effects of monetary policy on the real economy means that weaker activity can generally be anticipated in spring 2023. However, only a mild recession is expected in Germany.
A weaker performance in the US economy is expected in early 2023 due to the delayed effect of monetary policy. Although the inflation rate has been lowered, it will remain noticeable in 2023. Interest rate hikes already imposed will only slowly make themselves felt in the real economy. The first cut in key rates by the Federal Reserve is unlikely to be on the horizon until the end of the coming fiscal year. However, the US economy’s strong performance in the last quarter of 2022 was striking. Growth was driven particularly by consumer spending. It can therefore be assumed that the looming recession will be on the mild side. Away from real estate, most economic sectors in the USA have withstood the more restrictive monetary policy well.
The Japanese economy will see growth just below the prior-year level in 2023. Global inflation is expected to continue to subdue consumer spending. However, falling energy prices can be anticipated, and the Japanese government has also agreed support programs. This could take financial pressure off consumers and positively affect their spending.
The emerging markets, too, continue to be hit by the ailing global economy. However, there are opportunities for them to put themselves in a strong position for the future and reorient their economies. The Chinese government’s abrupt departure from the zero-Covid policy may lead to higher infection rates, which could curb economic growth particularly at the beginning of 2023. From the second quarter of 2023, however, China’s economic activity can be expected to return to normal. It is also likely that state support measures will mitigate the problems in the Chinese real estate sector in 2023. Southeast Asian emerging markets can expect a beneficial trend reversal in the service sector in 2023. While the global economic context remains difficult, slight economic growth can be anticipated. In the Indian economy, growth in gross domestic product is forecast to slow, primarily due to the difficult global financing environment and lower demand from abroad. Economic growth in the Middle East is forecast to be impaired by slower expansion in the major economies and the possibility of a recession in Europe. The slower economic growth in the USA and China represents a downside risk, particularly for developing countries that import oil and are more reliant on trade with Europe. In Brazil, the difficult financial conditions will further hit the country’s already weak growth. At the same time, we expect the weak fiscal policy course to be loosened even further as President Lula’s new government prioritizes social welfare spending. Russia is expected to see a considerable rise in inflation. This, combined with the continued impact of the sanctions against Russia, will likely result in economic contraction.
Procurement Market Trends
The cost of materials will start 2023 at a very high level given the current economic environment. A correction has now begun in the markets for important preliminary raw materials such as aluminum, silicone, and natural oils, which may lead to positive price effects in the second half of the year. However, this will be outweighed by product cost inflation at our suppliers, particularly in connection with energy market trends.
Sales Market Trends
After a challenging year, the environment remains uncertain in light of economic and political volatility. With continued high commodity prices, persistent supply shortages, rising inflation rates, and stretched consumer budgets, the market faces constant challenges. The expectation of an inflationary environment with the growing risk of a global recession remains. For fiscal year 2023 as a whole, we therefore expect the market to grow in terms of value, due to price increases compensating for higher product costs, but to decrease in terms of volume due to the expected sluggish consumer spending. Stronger growth in value is expected principally in the skin care categories, in the emerging markets, and in North America, as well as in online retail.
For tesa, we expect business to remain volatile in 2023. In Europe and North America, we are planning cautiously but expect less positive momentum for our business in 2023 than we saw in the previous year. In Asia, we anticipate moderate growth, which will be coupled very closely to the performance of the Chinese economy. Consumer sentiment, continuing inflation in Europe, the performance of the global automotive market, and our rather modest expectations for the electronics industry will heavily influence developments.
Our Market Opportunities
The transition from 2022 to 2023 is marked by uncertainty about a looming recession. The significant rise in inflation due to the Ukraine war, raw materials shortages, and logistics bottlenecks are the main drivers in this context. A difficult year for the world economy is therefore predicted for 2023. Nevertheless, we are optimistic about the new year. Thanks to targeted additional investments, particularly in the digital arena, and the large share of everyday products in our portfolio, we believe we are well positioned in the Consumer Business Segment and expect our growth to outperform the market in the year ahead.
We will build on our sound financial structure and strong earnings position together with our dedicated employees to continue exploiting future opportunities with our internationally successful brand portfolio. Extensive research and development activities resulting in successful, consumer-driven innovations will be flanked by targeted marketing measures, creating enduring confidence among our consumers.
For tesa, expected growth for the coming year is slightly above the global market trend. This applies to business with both end consumers and industrial customers. The close collaboration with the electronics industry in Asia remains constructive; however, its project-based nature continues to entail a high risk of volatility. tesa expects to bolster its market position with continued investment in research and development for innovative products.
The described challenges are persisting in large parts of the world. This has resulted in an unusually high degree of uncertainty with regard to the outlook for sales markets and our business development. Therefore, our ability to make a reliable forecast is significantly limited.
Independently from the development of the skin care market, we will continue to achieve above-market sales growth. We expect further improvement of the global skin care market in 2023. Based on this, we expect organic sales growth in the mid-single-digit range in the Consumer Business Segment. The EBIT margin from ongoing operations (excluding special factors) in the Consumer Business Segment will be 50 basis points above the previous year’s level.
Subject to the same uncertainty regarding market development in 2023, we also expect sales growth above the market in the tesa Business Segment. Based on this, we expect organic sales growth in the mid-single-digit range. The EBIT margin from ongoing operations (excluding special factors) will be slightly below the previous year’s level.
Based on the forecasts of the two business segments, Group organic sales growth is expected to be in the mid-single digit range. We expect the consolidated EBIT margin from ongoing operations (excluding special factors) to be slightly above the previous year’s level.
Hamburg, February 6, 2023
The Executive Board