Forecast

Economic Outlook

Global Economy

The end of the first half of 2021 saw a new record high in worldwide economic output, although the impact of the coronavirus pandemic is still evident in some segments of the global economy. Thanks to a sharp upturn in vaccination rates and the subsequent launch of controlled measures to fight the coronavirus pandemic, we anticipate very positive economic growth rates in all regions the 2021 fiscal year as a whole. The potential spread of new coronavirus variants raises the possibility of additional waves of the pandemic, which could have a negative impact on supply chains, product availability, and therefore growth. For this reason, economic growth remains dependent on vaccination progress and pandemic-fighting measures taken by various countries going forward. Pandemic-related logistics problems and progress in the transition to sustainable energy are currently pushing up energy prices, which is in turn putting downward pressure on global economic growth. Minimal short-term production growth, inflation, and interest rate hikes also could have a negative effect on the remaining growth in 2021. In contrast to the outlook we published in the Annual Report 2020, we still anticipate robust growth in the global economy and a resulting increase in economic performance of 5.5%.

We revised our estimates for all regions upward, principally due to substantially higher production volumes and consumer spending. In the NA region, we anticipate a more significant increase in expected economic growth compared with our outlook published in the Annual Report 2020. This is due to factors including expansion of the US economic stimulus package, continued expansive monetary policy, and the demand for services in excess of expectations to date. Another overall economic situation significantly better than the assessment we presented in our Annual Report 2020 is taking shape in the EMLA region. This is mostly due to rising vaccination rates, the progressive lifting of pandemic-related restrictions, the strong labor market, and the spending of savings amassed by households during the coronavirus pandemic. In the APAC region, we expect the economic recovery to proceed slightly faster than stated in our outlook in the Annual Report 2020, driven mainly by growth in China coming in stronger than expected.

Economic growth1

 

 

 

 

 

 

 

 

 

Growth 2020

 

Growth forecast 2021 (Annual Report 2020)

 

Growth forecast 2021

 

 

%

 

%

 

%

World

 

–3.6

 

+4.4

 

+5.5

Europe, Middle East, Latin America2, Africa (EMLA)

 

–5.7

 

+3.4

 

+4.9

of which Europe

 

–6.0

 

+3.2

 

+5.0

of which Germany

 

–4.9

 

+2.8

 

+2.8

of which Middle East

 

–3.5

 

+4.5

 

+4.4

of which Latin America2

 

–7.5

 

+3.7

 

+5.6

of which Africa

 

–2.5

 

+2.4

 

+3.5

North America3 (NA)

 

–3.8

 

+4.0

 

+5.4

of which United States

 

–3.4

 

+4.0

 

+5.4

Asia-Pacific (APAC)

 

–1.1

 

+5.7

 

+6.1

of which China

 

+2.3

 

+7.6

 

+8.2

1

Real growth of gross domestic product; source: IHS (Global Insight), “Growth 2020” and “Growth forecast 2021” as of October 2021.

2

Latin America (excluding Mexico).

3

North America (Canada, Mexico, United States).

Main Customer Industries

In all main customer industries, we continue to forecast positive growth for the year 2021. However, we expect the pace of growth to differ in the individual industries. Growth in the automotive industry is projected to be 2.8%, down from outlook presented in the Annual Report 2020. This is chiefly due to bottlenecks in the supply of semiconductors and petrochemical by-products, and the resulting limitations in car manufacturing. At 2.2%, growth in the construction industry will likely exceed our expectations presented in the Annual Report 2020, however. We anticipate the growth rate in the electrical, electronics and household appliances industry to come in at 13.2%, higher than expected in the Annual Report 2020, on account of the growth in consumer expenditure persisting throughout the coronavirus pandemic. The projected growth rate for the furniture industry was raised to 4.8%.

Growth in main customer industries1

 

 

 

 

 

 

 

 

 

Growth 2020

 

Growth forecast 2021 (Annual Report 2020)

 

Growth forecast 2021

 

 

%

 

%

 

%

Automotive

 

–15.9

 

+17.3

 

+2.8

Construction

 

–1.8

 

+0.6

 

+2.2

Electrical, electronics and household appliances

 

+4.5

 

+6.3

 

+13.2

Furniture

 

–4.8

 

+4.6

 

+4.8

1

Covestro’s estimate, based on the following sources: LMC Automotive Limited, B+L, CSIL (Centre for Industrial Studies), Oxford Economics. We limited the economic data of our “automotive and transportation” and “furniture and wood processing” main customer industries to the automotive and furniture segments (not the transportation or wood processing segments). As of: October 2021.

Forecast for the Covestro Group

The analysis of the development of our key management indicators is based on the business performance described in this Quarterly Statement, the economic outlook outlined above, and consideration of our potential risks and opportunities. There has been no fundamental change in the risk situation from the presentation in the Annual Report 2020. At the time this Quarterly Statement was prepared, there were no risks that could endanger the Group’s continued existence. The acquisition completed on April 1, 2021, and integration of the Resins & Functional Materials (RFM) business of Koninklijke DSM N.V., Heerlen (Netherlands), has been factored into this forecast.

Covestro adjusted the forecast presented in the Annual Report 2020 on April 13, 2021, as a result of business development that has been better than previously expected. An increasingly positive outlook led to the forecast being raised again on July 12, 2021. Taking into account current business performance, we once again adjusted our forecast on November 8, 2021, and currently expect the following developments in our key management indicators for fiscal 2021:

Forecast key management indicators

 

 

 

 

 

 

 

 

 

 

 

2020

 

Forecast 2021 (Annual Report 2020)

 

Previous forecast 2021 (July 12, 2021)

 

Adjusted forecast 2021 (November 8, 2021)

Core volume growth

 

–5.6%

 

Between 10% and 15%

 

Between 10% and 15%

 

Between 10% and 12%

Free operating cash flow (FOCF)

 

€530 million

 

Between €900 million and €1,400 million

 

Between €1,600 million and €2,000 million

 

Between €1,400 million and €1,700 million

Return on capital employed (ROCE)1

 

+7.0%

 

Between 7% and 12%

 

Between 16% and 20%

 

Between 19% and 21%

1

ROCE: The return on capital employed is calculated as the ratio of EBIT after taxes to capital employed. Capital employed is the capital used by the company. It is the sum of noncurrent and current assets less noninterest-bearing liabilities such as trade accounts payable.

We currently anticipate that core volume growth for the Covestro Group will be between 10% and 12% (previously: between 10% and 15%), with around 6 percentage points attributable to the acquisition of the RFM business. We assume that core volume growth in the Performance Materials segment will come in between 0% and 2%. However, the Solutions & Specialties segment is anticipated to generate growth well above the range expected for the Group.

FOCF is currently forecast to be in the range between €1,400 million and €1,700 million this year (previously: between €1,600 million and €2,000 million). In contrast with the forecast to date, we anticipate an increase in funds tied up in working capital, which affects FOCF negatively. The Performance Materials segment is expected to produce FOCF well over the prior-year figure, while FOCF in the Solutions & Specialties segment will likely be slightly under the prior-year figure.

For fiscal 2021, we now expect a ROCE of between 19% and 21% (previously: 16% and 20%).