While the economic climate in the first half of the business year 2018/19 was largely characterized by stability and positive sentiment, the transition to the third quarter of the current business year brought a dampening of the macroeconomic environment in Europe. Among other things, this translated into rising raw materials and energy prices but, above all and for the first time, substantially negative effects resulting from the global trade conflicts—and not least the growing escalation of the conflict surrounding the departure of Great Britain from the EU.
Moreover, the third quarter also saw negative economic trends in key industries that followed the sustained upturn in almost all industrial sectors. For instance, the Worldwide Harmonized Light Vehicle Test Procedure (WLTP), which has been in effect since September 1, 2018, led to considerable uncertainty on the part of both automotive manufacturers and consumers, with the associated effects on market behavior. Demand has peaked in the consumer goods and electrical industries as well. The slumping oil price in the third quarter triggered a temporary weakening in the demand for oil equipment, especially in North America.
At the regional level, China’s growth momentum has lost considerable steam in the past 12 months, followed in the second half of 2018 by Europe, whereas the USMCA region remained stable at a high level throughout the 2018 calendar year, and Brazil continued on a cautious growth trajectory not least due to the political changes in the country.
From today’s vantage point, not much is expected to change in the coming months with respect to the big picture that prevailed at the turn of 2018/19. A short-term easing of tensions in China’s economic climate seems more unlikely than not, but the Chinese government will endeavor to take steps aimed at stabilizing the country’s economic growth. In the United States, the positive effects of the tax reforms initiated two years ago should continue for the time being, provided the Federal Reserve refrains from raising interest rates any further as it indicated most recently.
The economic scenario in Europe over the next few months will undoubtedly be dominated by the final procedure—as yet to be determined—regarding the exit of Great Britain from the European Union. If the “hard” Brexit comes to pass, such a scenario would impact the macroeconomic climate in Europe irrespective of economic developments.
Aside from the uncertainties that such a scenario would entail, the European economy is likely to cool off a bit more in the first half of the 2019 calendar year compared to the final months of the previous year, but it is not expected to slide into a recessionary scenario. This against the backdrop that there are no reasons to expect a massive downturn in key economic sectors such as the construction and infrastructure industry as well as the oil and natural gas industry, not to mention that the automotive industry has found its footing yet again after its critical WLTP experience. However, the scenario of moderate cyclical growth in Europe might be undermined by political factors: Besides the Brexit issue, which dominates everything at this point, such a development would include the global trade conflicts and, within the EU, decisions related to energy and climate policies (electricity price zone discussion, CO2 pricing, and the like).
On the assumption that the coming months will not bring any such dramatic distortions and in keeping with the trajectory indicated in our ad hoc report dated January 16, 2019, we expect the Group’s operating result (EBITDA) for the business year 2018/19 to be around EUR 1,550 million and its profit from operations (EBIT) around EUR 750 million. The revenue for the business year ending on March 31, 2019, should surpass that of the business year 2017/18 and thus reach a new high.