Annual Report 2023

Annual Report 2023

Economic Environment

General economic situation

Gross Domestic Product1

Change versus previous year (in %)

Gross Domestic Product (bar chart)
1 Commerzbank Research.

Inflation Rate1

Change versus previous year (in %)

Inflation Rate (bar chart)

The global economy lost momentum. Despite a robust start to 2023, growth slowed noticeably over the summer. This was mainly due to weak industrial production and a significant rise in interest rates in most regions of the world, which inhibited investment in residential construction in particular. Another dampening factor was China’s subdued economic development, which was largely based on debt in the country’s real estate sector. Inflation fell only slowly from a very high level. Real income growth resulting from wage adjustments only made a gradual contribution to stimulating consumption. Supply chain difficulties have largely been replaced by new challenges. Although supply chains disrupted by the pandemic have largely been restored, the global manufacturing sector has shown weaknesses in the face of weak productivity growth, the expiry of COVID–19 support measures and difficult financial conditions. In addition, the shift in demand toward the service sector and increased uncertainty about the future geo-economic situation have led to a reluctance to invest.

The sentiment indicators for the corporate sector and private households in Europe often showed opposing trends over the course of 2023. The significant rise in interest rates and the associated decrease in the inflation rate caused consumers to breathe a sigh of relief. The consumer climate has gradually stabilized since the low point in autumn 2022, when the inflation rate in the eurozone reached double digits at times. By contrast, the situation in industry is considered to be particularly critical. This sector suffered from weak global demand and a deterioration in price competitiveness, triggered by the appreciation of the euro. In the second half of the year, there were signs of a decline in new orders in industry. However, this decline has not yet been fully reflected in production, as companies were still processing many orders that had been left unfilled due to the supply bottlenecks that had occurred in the meantime. The situation in the construction industry was also poor. The significant deterioration in financing conditions and the drastic rise in construction costs had a noticeable dampening effect on demand for construction services.

The German economy remained in a difficult situation in 2023. Private consumption in particular proved to be susceptible to economic weaknesses, and exports also recorded a decline. The tensions between China and the West led to below-average growth in foreign trade. Although the burden of energy prices on companies and private households eased, this was not enough to compensate for other negative factors, as the massive interest rate hikes by most central banks put the brakes on the economy. They significantly reduced demand for industrial goods and residential construction. The fluctuations in incoming orders in industry were very pronounced. This was due to the fact that the volume of large orders varied from month to month. Despite these challenges, companies were able to keep production largely stable and thus reduce the order backlogs built up in recent years.

The US economy recorded fairly strong growth, mainly due to an unusually expansive fiscal policy. The inflation rate, which fell significantly in the first half of the year, was unable to continue the trend in the second half of the year, particularly due to a significant rise in gas prices in the meantime. Nevertheless, both private consumption and fixed asset investments recorded noticeable growth. The latter can probably be attributed to the subsidies introduced for the semiconductor industry and transformation technologies. The downturn in residential construction investment has, continued but slowed somewhat. At the end of the year, the slowing factors became increasingly noticeable. The savings rate recently reached unusually low levels.

In Japan, macroeconomic production increased sharply in the first half of 2023, mainly due to rising exports as a result of a significant devaluation of the yen. This also led to a very significant rise in inflation by Japanese standards.

Developments in the emerging markets painted a mixed picture. China surprised on the downside in the final months of the year. The end of the zero COVID policy in December 2022 only gave the economy a brief boost. The problems on the real estate market had a significant impact on the economy. In combination with uncertainties on the labor market, these developments weighed on consumer spending. In addition, industrial production, corporate investment and exports recorded a decline, which is attributable to both weakening foreign demand and geopolitical uncertainties. In Russia, overall economic production in the second quarter of 2023 returned to its level before the invasion of Ukraine. Investments increased in connection with the rise in military spending, but private consumption also increased thanks to higher real wages and social benefits. Nevertheless, there are bottlenecks in the labor market, as many workers have been drafted into the army or left the country to avoid military service since the beginning of the war. Nevertheless, overall economic development proved to be robust. The increase in growth reflected a significant fiscal stimulus, strong investment and stable consumption against the backdrop of a tight labor market. Growth was largely driven by the production of military goods, which do not benefit the population. The Brazilian economy benefited from a record harvest. High revenues from the export of crude oil and iron ore and the recovery of the service sector also boosted gross domestic product growth. The reduction in oil production led to weak development in the Middle East. However, the decline in activity in the oil sector was offset by other sectors of the economy, supported by sustained private consumption, strategic fixed investment and a supportive fiscal policy stance. The Indian economy remains a reliable growth driver for the global economy. In 2023, the high pace of the previous year was maintained. For the third year in a row, the Indian economy was characterized by a strong increase in private investment. At the same time, the previous year’s record-high level of exports was maintained. The Southeast Asian emerging markets are on the upswing. Their fundamentals are stabilizing, growth is returning and corporate balance sheets look solid.

Sales market trends

Consumer Spending1

Change versus previous year (in %)

Consumer Spending (bar chart)
1 Commerzbank Research

The global market environment was in a volatile position again in 2023. Materials shortages, which resulted from continuing supply chain pressures combined with very buoyant markets, represented a major challenge. Meanwhile, geopolitical tensions and continued high inflation stoked fears of recession. While global commodity prices eased slightly, energy costs remained at a very high level. The volume and value of the global cosmetics market grew despite the challenging circumstances. The only exception was China, where the cosmetics market bounced back less than expected after the lifting of COVID–19 restrictions. Globally, there was year-on-year growth particularly in the deodorant, sun, and lip care categories.

Uncertainty continued to leave its mark on the tesa Business Segment’s activities in 2023. The global recovery from the COVID–19 pandemic is slow and uneven. The Russian invasion of Ukraine continues to affect the economic situation, and economic activity remains below pre-pandemic levels. The conflict in the Middle East has also further unsettled markets. Inflation remained at a high level in 2023, albeit below the previous year’s peaks. In this environment, performance in industrial sales markets was mixed. The automotive industry was resilient and recorded an upturn globally. However, other industrial sales markets along with the distribution business saw high levels of consumer uncertainty, inventory reduction measures, and an overall downward trend. This was particularly the case in Europe and to a certain extent in North America, while growth momentum from Asia was positive.

Procurement market trends

Offshoots of the 2021 and 2022 supply chain crisis continued to shape developments in 2023. Further supply shortages occurred particularly in the first half of the year, combined with significant inflation in many raw materials, packaging, and logistics markets. This was partly due to high levels of macroeconomic uncertainty, driven by factors such as the Russia-Ukraine war, the China-Taiwan conflict, and the sluggish recovery of Chinese manufacturing output. Energy costs also remained at a high level. Combined with inflation for other input factors, this prompted production costs to rise further. A first correction in important markets for materials and services was observed in the second half of the year, chiefly due to capacity expansion. This, together with our cross-departmental management of supply shortages and preferential position with key suppliers, enabled us to further limit the negative impact of supply difficulties on our production sites and distribution partners.

Overall assessment of the economic environment

The global cosmetics market performed positively in 2023. In the mass market, where NIVEA competes, growth was still largely driven by price rises, although volume growth was also positive. The components of growth were more balanced in the dermocosmetic skin care market. Overall, both Skin Care and Personal Care (deo, soaps, shower gels) produced strong growth. The focus in the Consumer Business Segment remained on Skin Care, which accounts for the largest share of our marketing budget. All Skin Care subcategories posted growth again in the reporting year.

Significant impacts of the continued high inflation and significant price rises for raw materials, logistics, and energy made themselves felt in the tesa Business Segment again in 2023. Despite difficult circumstances, tesa posted an increase in sales. This was driven by new products, new customers and projects, and the necessary price rises in both divisions – Industry and Consumer.

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