General Economic and Industry-Specific Conditions

Global economy with moderate expansion, industrial activity still stagnating

In the current reporting period, the global economy grew moderately despite the geopolitical crises. Numerous central banks have begun to lower key interest rates, including the ECB for the euro area. By contrast, the US Federal Reserve has not yet relaxed its US monetary policy. Despite the slight tailwind, industrial production in the US recovered in the second quarter (Q1 2024: -2.1%; Q2 2024: +4.3%). However, the utilization of industrial capacity there fell by almost one percentage point year on year (Q2 2024: 78.3%; Q2 2023: 79.1%). The US economy grew by an annualized 2.8% in the second quarter of 2024 (Q1 2024: +1.4%). This corresponds to an annual rate of +3.1% (Q1 2024: +2.9%). Supported by political stimulus and higher exports, China’s industrial activity has recovered. Production rose by 6.0% in the six-month period of 2024, but capacity utilization remained somewhat lower than in the previous year (H1 2024: 74.3%, H1 2023: 74.4%). In China, the economy recorded growth of 5.0% in the period from January to the end of June 2024 (Q1 2024: +5.3%, Q2 2024: +4.7%). Although Europe’s economy has overcome the stagnation phase, the economic recovery remained very subdued due to the weak development in the construction industry and manufacturing. The industrial sector had to reduce its production noticeably (Q1 2024: -4.6%; April: -3.1%; May -2.9%), so that capacity utilization deteriorated to 79.0% in the second quarter of the current fiscal year compared to 81.1% in the same quarter last year. The euro area  barely grew in the second quarter of 2024 (Q1 2024 revised: +0.5%; Q2 2024: +0.6%).

German economy is only slowly emerging from the crisis

The German economy was characterized by a slight recovery in the first half of the year, with the underlying trend remaining weak. Impetus came almost exclusively from abroad. Due to the very mild weather, the construction industry also got off to a good start in the year. However, this effect faded again in April. Private consumption was subdued, although collective wages had risen very sharply in some cases and inflation had tended to weaken. With a sharp decline in production output, the industrial sector remained in recession (Q1 2024: -5.2%; April: -3.5%; May: -7.3%). Capacity was noticeably underutilized at 80.6% in the second quarter of 2024 (Q2 2023: 84.1%). Although gross domestic product rose by 0.3% in the same period thanks to an additional working day (Q1 2024: revised -0.8%), after seasonal and calendar adjustments, economic output fell by 0.1%. Investments in equipment and construction in particular were declining. The German economy has therefore not yet emerged from recession.

Mechanical engineering burdened by reluctance to invest

According to the ifo Institute, demand for consumer goods was low at the beginning of 2024 and companies’ willingness to invest was cautious. This paralyzed global industrial economy. Global industrial production volume (excluding construction) picked up slightly in the first five months of 2024, increasing by 1.6% (2023: +0,9%), but the development was only positive in emerging economies (+3.9%). In industrialized economies, however, production fell slightly (-1.0%). Combined with the very low utilization of industrial capacity and high interest rates, demand for machinery and equipment was weak – despite the growing importance of investments in climate protection and the restructuring of the energy industry that are necessary regardless of economic growth and are partly state-supported. Machinery production in the US remained under pressure (annualized Q1 2024: -3.9%; Q2 2024: -3.3%). In the euro area, capital goods production declined sharply at the beginning of the year. However, it

may have stabilized at a low level over the course of the first half of the year (Q1 2024: -6.0%, March: +1.8%). The underlying trend nevertheless remained weak. Production in German mechanical engineering also fell significantly (Q1 2024: -6.7%; April: -7.0%; May -13.3%).

Automotive markets worldwide recover slightly, production in Europe declines

The slight recovery in the global automotive market continued during the first half of 2024. Europe, North America and China all recorded positive developments. Only in Japan and South Korea were sales down significantly. According to the industry association VDA, however, the momentum in the global market weakened overall during the reporting period as a result of subdued consumer demand. According to Global Data (GD, formerly LMC Automotive), global sales of light vehicles (LV, up to 6 t) rose by 2.3% to 42.47 million units by the end of June 2024. However, production stagnated at 44.0 million LV (+0.2%), with slight declines in Europe (-1.1%). Production of LV with pure combustion engines continued to decline worldwide (H1 2024: -6.5%). However, the share of globally produced LV units for which they account remained clearly dominant at just over two-thirds, even though alternative drives continued to gain ground. The number of battery-electric vehicles produced (BEV + hybrid PHEV) rose by 18.6% alone. While the market for commercial vehicles (CVs) in Europe and, from the second quarter of 2024 onward, in North America suffered from the economic weakness and reluctance to invest, Asia saw a turnaround. According to data from GD, global CV production grew by 1.1% to just over 1.7 million units by the end of June 2024, whereas it fell particularly in Europe (-11.7%) and North America (-1.6%). The CV production volume in the first half of 2024 is distributed across 1.6 million trucks (-0.3%) and 148,000 buses (+19.9%).

Weak construction industry in China and Europe, building construction in recession

The crisis in the Chinese real estate sector continued to weigh on the country’s economy in the first half of 2024. Building construction was hit hard, declining unabated. According to the NBS statistics office, China’s building investments fell by 10.1% between the start of the year and the end of June (2023: -9.6%). Investments in the largest segment, residential construction, shrank by 10.4% (2023: -9.3%). Burdened by the low overall economic momentum, increased interest rates and the strained budget situation in the public sector, the construction industry in Europe is also suffering. In addition, according to the industry network Euroconstruct (including ifo), the increased construction costs continue to have a negative impact. Nevertheless, construction production in the euro area remained almost stable overall at the beginning of 2024 (Q1 2024: -0.2%). The main reasons for this were the mild weather in many regions and an increase in civil engineering. As the year progressed, however, the downward trend became more visible (April: -1.5%; May -2.4%). Building construction has shrunk since the beginning of the year. However, the development varied greatly from region to region. Construction production rose noticeably in Portugal, but it developed even more strongly in Hungary. The Netherlands, France and especially Sweden and Finland, however, recorded a decline. In Germany, the downturn was significant. Construction production and sales continued to fall on a real basis.

US construction industry continues to grow, high investments in water management

As a result of the rise in interest rates, investments in US single-family home construction fell immediately and massively in 2023. By contrast, there has been a recovery in 2024 so far (6 months 2024: +14.8%). However, spending on multi-family home construction (-2.9%) and, as a result of the expected slowdown in economic momentum, commercial buildings (-11.2%) declined. Almost all other construction segments continued to grow, including, in particular, projects related to public construction projects in infrastructure. For example, investments in the water industry increased significantly by 14.8%. Overall, construction investments in the US increased by 8.6% by the end of June 2024 (public sector +11.5%; private sector +7.9%). NORMA Group’s water management

business in the US (activities of the US subsidiary NDS) correlates very strongly with the real estate market. The market drivers in this segment began to weaken in 2023 after recording higher growth rates during the global pandemic. According to the Zonda Residential Remodeling Index (RRI), remodeling activities in the residential construction segment in the US started 2024 with a growth rate of 1%. Project backlogs from 2023 were the main driver here. On the other hand, extreme weather conditions had a negative impact on the development of the US real estate business. While the drought in the western US is still ongoing, there was again above-average rainfall in the winter/spring of 2024. This again had a negative impact on the growth of activities in the landscape and irrigation industry.