Economic Environment and Outlook
Global gross domestic product rose by around 2.7% in the first half of 2017 compared with the same period of the previous year; global industrial production grew at a similarly fast pace. Especially in Europe, China and Japan, growth was stronger than we had expected at the beginning of the year. The automotive industry demonstrated solid growth in the first half; demand in the construction industry also developed positively in Europe and Asia. The price of oil remained under pressure, even though the OPEC countries had agreed with other oil-producing countries in May 2017 to continue the production limits that had been in place since the beginning of the year. Contrasting influences included high inventories on the market and the additional production of shale oil in the United States.
We have adjusted our expectations for the global economic environment in 2017 as follows (previous forecast from BASF Report 2016 in parentheses):
- Growth in gross domestic product: 2.5% (2.3%)
- Growth in industrial production: 2.5% (2.3%)
- Growth in chemical production: 3.4% (3.4%)
- Average euro/dollar exchange rate of $1.10 per euro ($1.05 per euro)
- Average Brent blend oil price for the year of $50 per barrel ($55 per barrel)
The statements on opportunities and risks made in the BASF Report 2016 remain valid. For the second half of 2017, we continue to expect considerable risks from currency and margin volatility. There is still a risk of a global economic slowdown – due in part to the increased tendency toward protectionism – as well as a risk of escalating geopolitical conflicts. Our overall assessment of opportunities and risks remains principally valid.
The BASF Group’s sales and earnings development exceeded our expectations in the first half of 2017. For the second half of 2017, we expect EBIT before special items to slightly surpass the level of the second half of 2016. For this reason, we have adjusted our 2017 forecast for the BASF Group as follows (previous forecast from BASF Report 2016 in parentheses)1:
- Considerable sales increase (considerable increase)
- Considerable increase in EBIT before special items and EBIT (slight increase)
- Significant premium on cost of capital with slight increase in EBIT after cost of capital2 (considerable decline in EBIT after cost of capital)
1 With reference to sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. “At prior-year level” indicates no change (+/–0%). For earnings, “slight” means a change of 1–10%, while “considerable” is used for changes of 11% and higher. “At prior-year level” indicates no change (+/–0%).
2 For an explanation of this figure, see the BASF Report 2016, Value-based management.