In the third quarter of 2022, global economic activity weakened more significantly than expected. In Europe, the sharp rise in energy prices and associated increases in consumer prices have significantly eroded the purchasing power of private households. This has reduced demand for consumer durables in particular. High energy prices have also led to production shutdowns in energy-intensive sectors. This was compounded by the drought in Europe, which impacted inland shipping and drove up transportation costs and electricity prices. In addition, the strong U.S. dollar made imports more expensive in the eurozone.
In the United States, economic development was dampened by high inflation rates and sharply rising interest rates. Demand in the construction sector in particular suffered from higher financing costs. In China, the economy is recovering only hesitantly and the Chinese government’s zero-Covid policy repeatedly led to regional restrictions on production in the third quarter of 2022. In this environment, economic activity also weakened in many other Asian countries, which faced weaker export demand and rising prices for energy imports.
Against this background, BASF has adjusted its assessment of the global economic environment in 2022 (values rounded to half percentage points, previous forecast from BASF’s Half-Year Financial Report 2022 in parentheses):
- Growth in gross domestic product: +2.5% (unchanged)
- Growth in industrial production: +2.5% (+3.0%)
- Growth in chemical production: +2.0% (+2.5%)
- Average euro/dollar exchange rate of $1.05 per euro ($1.07 per euro)
- Average annual oil price (Brent crude) of $100 per barrel ($110 per barrel)
Despite the significant weakening of the economic environment in the third quarter of 2022, the BASF Group’s forecast for the 2022 business year published in the Half-Year Financial Report 2022 remains unchanged:
- Sales of between €86 billion and €89 billion
- EBIT before special items of between €6.8 billion and €7.2 billion
- Return on capital employed (ROCE) of between 10.5% and 11.0%
- CO2 emissions of between 18.4 million metric tons and 19.4 million metric tons
Due to the above developments, BASF expects extremely volatile markets and associated uncertainties in the fourth quarter of 2022. Specifically, the war in Ukraine and its impact on energy and raw materials prices and the availability of raw materials, especially in Europe, may lead to additional headwinds compared with the assumptions presented above. In particular, risks may arise as a result of restrictions to natural gas supplies. This requires corresponding production adjustments and, depending on the extent, may lead to production interruptions at the major European sites. In this case, the loss of European capacities could be partially compensated for by higher plant capacity utilization at sites outside of Europe and corresponding imports to Europe. Further risks could arise from the future course of the coronavirus pandemic and the reintroduction of measures to contain rising infection numbers. Opportunities may arise from an improved macroeconomy.
We are responding to the deteriorating economic environment and structurally higher energy costs in the future with cost reduction measures.
For the remaining opportunity and risk factors, the statements made in the BASF Report 2021 continue to apply overall. According to the company’s assessment, neither existing individual risks nor the sum of individual risks pose a threat to the continued existence of the BASF Group.