Expected changes in business conditions

Uncertainty has dominated global economic projections since the beginning of 2008 because of fears about the lasting effects of the U.S. credit crisis on the various sectors of the real economy.

Against this backdrop, we currently assume that economic performance will vary from region to region. Our present forecasts project a slowdown in the U.S. economy in fiscal 2008. Europe overall is also expected to see a slight reduction in growth. Germany will be no exception, but its economy should still prove robust in 2008. Asia's emerging markets are poised to sustain their momentum and we expect growth to remain strong, especially in China at 8.6%. The economies of central and eastern Europe and South America are also likely to perform well, with substantial stimulus coming particularly from Brazil. Overall, we predict that the global economy will expand by 2.8% for the full year.

In addition to the growth of the various economies, the performance of the U.S. dollar and rising oil prices, the reference for our raw material costs, are of significance for us. In our business planning we are assuming that the U.S. dollar will be unable to recover until the second half of the year at the earliest. The prices of our raw materials and utilities will remain high and volatile.

(data based on February 2008 forecasts)

Future performance of the chemical industry

LANXESS is confident that the chemical industry will continue to perform well in 2008. In keeping with our estimates for global economic growth, we expect the chemical sector to expand by 3.0%. The regions that proved fast-growing in prior years will again grow strongly, although not at the same pace as before. We forecast production increases in India and China at the general level of GDP growth. For the Americas region, we project only slight growth. The pace of expansion will also slow in Europe, but the growth rates in central and eastern Europe will remain strong.

¹⁾ rounded to 0.5%

Future evolution of selling markets

The trends we expect to see in our selling markets reflect the regional differences in the economies.

In the Americas region, our key U.S. selling markets will continue to decline. In line with expectations, forecasts for the construction (-1.0%), automotive (-1.0%) and tire industries (-2.0%) are weak. In Latin America, all listed selling markets show a clear uptrend. The situation in Europe is not uniform. While growth in western Europe will decrease slightly yet remain robust, central and eastern Europe are expected to return a consistently strong performance. The same applies to our major selling markets in the Asia-Pacific region. Alongside positive projections for the automotive (6.0%) and tire industries (6.5%), forecasts for the region's construction and electronics industries indicate a continuation of the impetus for growth.

These forecasts clearly show the ongoing shift of tire production to emerging economies. As they move to tap growth markets, automakers are also relocating manufacturing operations there with the aim of serving the markets locally.