Economic Environment and Outlook

In the first half of 2018, global gross domestic product rose by around 3% year on year. Global industrial production saw similarly strong growth. However, momentum slowed compared with the second half of 2017. Growth was dampened by capacity bottlenecks and lower export gains, particularly in Europe. The upward trajectory in the emerging markets of Asia remained stable at a high level, while Japan was unable to maintain the unusually high growth trend from the previous year. In the United States, the tax reform increasingly provided a tailwind for the economy.

Global automotive production rose moderately in the first half of the year, in line with our expectations. Demand from the construction industry developed positively in Europe and Asia. By contrast, growth was more restrained in North America due among other factors to unfavorable weather conditions in the first quarter of 2018.

The price of oil rose considerably in the first half of the year. At $71 per barrel of Brent crude, this was around 35% higher than the average for the prior-year period. The price increase was mainly attributable to solid demand amid limited supply from OPEC countries and Russia. The effects of speculation following the United States’ withdrawal from the Iran nuclear deal also played a role.

Global economic risks increased significantly over the course of the first half of 2018, driven by geopolitical developments and the trade conflicts between the United States and China, as well as between the United States and Europe. We are monitoring these developments and the potential effects on our business very closely.

At this time, our assessment of the global economic environment in 2018 remains unchanged with the exception of the expected oil price (previous forecast from the BASF Report 2017 in parentheses):

• Growth in gross domestic product: 3.0%
• Growth in industrial production: 3.2%
• Growth in chemical production: 3.4%
• Average euro/dollar exchange rate of $1.20 per euro
• Average Brent blend oil price for the year of $70 per barrel ($65 per barrel)

Overall, the statements on opportunities and risks made in the BASF Report 2017 continue to apply. However, the previously mentioned factors have increased the risk of a growth slowdown. According to our assessment, there continue to be no individual risks that pose a threat to the continued existence of the BASF Group. The same applies to the sum of individual risks, even in the case of another global economic crisis.

We are confirming the sales and earnings forecast¹ for the BASF Group made in the BASF Report 2017:

• Slight sales growth
• Slight increase in EBIT before special items
• Slight decline in EBIT
• Significant premium on cost of capital with considerable decline in EBIT after cost of capital²

This forecast does not take into account the intended merger of our oil and gas activities with the business of DEA Deutsche Erdoel AG and its subsidiaries.