Instrument and lab product company executives appear more optimistic about sales prospects now than they did in fall 2012, according to the latest results of the IBO Business Climate Survey. This is despite the US budget sequestration and recent downgrade in expectations for world GDP growth by the International Monetary Fund (IMF). In April, the IMF revised its 2013 world GDP growth forecast to 3.3%, down two-tenths of percentage point from its January forecast.

Of the executives surveyed for this spring’s IBO Business Climate Survey, 55% expect instrument industry sales to increase moderately in the second and third quarters (see graph, page 4). This percentage compares to 40% in October 2012 who expected sales to increase moderately in the next six months (see IBO 10/15/12) and 47% in May 2012 (see IBO 5/15/12). In this spring’s Survey, 38% of respondents expected sales to stay the same in the second and third quarters, compared with 36% last fall. In addition, no respondent expected sales to decline. Last fall, 24% expected a decline in sales. The increased optimism might reflect a belief that the bottom has been reached of the current cycle.

To complete the Business Climate Survey, IBO surveyed 29 analytical instrument and laboratory product company executives, including subscribers, by email in May.

Increased optimism is also evident among the CFOs surveyed in March as part of the latest Duke University/CFO Magazine Global Business Outlook. The Outlook’s Business Optimism Index, which uses a scale of 0 to 100, increased for executives in all regions/countries, except for executives at Asian companies not located in Japan and China. The biggest changes in the Business Optimism Index between December 2012 and March were evident in Japan, where the Index increased from 49 to 60, and in the US, where it increased from 51 to 55. As the table at the bottom of this page shows, Japanese executives had the expectations for the fastest capital spending growth for the next 12 months, and Chinese executives expected the fastest growth in R&D spending.

In the US, the sequestration had already led to a more cautious instrument and lab product spending environment, even before its finalization. The sequestration became official with the passage of the final fiscal 2013 federal budget in March (see IBO 3/15/13), and thus can be expected to be a major factor for instrument and lab product companies’ sales growth in 2013 and the future. IBO asked executives to rate using a scale of 1 to 5, with 1 meaning no effect and 5 meaning a severe effect, the expected effect this year of the sequestration on academic and government spending on both analytical instrument and consumables sales.

As the graph above shows, among the four categories, the most serious impact of sequestration, according to the highest percentage of executives, is expected to be on analytical instrument spending by the government. As expected, the impact on government spending on both instruments and consumables is expected to be more severe than on academic spending. However, 32% of executives still rated the expected effect on academic spending on analytical instruments this year a 4.

Another big story this year was the announcement of Thermo Fisher Scientific’s plans to purchase Life Technologies (see IBO 4/15/13). To get an industry perspective on the announcement, IBO asked executives to rate it as either positive, negative or neutral for the industry in general. Fifty percent of respondents rated it as neutral. However, 42% rated it as negative, indicating the divisive opinions that such a transaction can generate, perhaps depending on if one’s company is a competitor or not.

As usual, IBO also surveyed prospects for regional markets in the second and third quarters. Respondents were asked to rate expectations for sales growth on a scale of 1 to 5, with 1 meaning worsening, 3 meaning stable and 5 meaning improving. Reflecting the overall optimism for sales prospects compared with last fall, average ratings for all nine countries/regions increased, with five showing changes of five-tenths of a percentage point or more (see graph above). India and Southeast Asia continued to reign as the regions with the best prospects, as they did respectively in the spring and fall 2012 Surveys. However, unlike last fall, this spring, India and Southeast Asia each had average ratings above 4. In fact, India showed the largest jump in average rating, rising to 4.1 from 3.2 last fall. China’s average rating rose eight-tenths of a percentage point to 3.9. All nine regions/countries had average ratings of 3 or above. The total average rating for all regions/countries was 3.6.

To gain further insight into where sales opportunities exist geographically, IBO asked executives to name two European countries and two developing countries that show the best prospects for analytical instrument sales growth this year. Not surprisingly, for Europe, Germany was named by 33% of respondents (based on a percentage of all answers given). Far behind was the UK, which was cited by 16% of respondents, and Nordic countries (either collectively or individually), which were cited by 12%. Russia was cited by 11%. Interestingly, Italy was named in two responses.

As for emerging nations, opinions were a little more divided. Thirty-two percent of executives named India, and 30% named China. Brazil was cited by 17%. Other countries receiving more than one response were Indonesia, Mexico and Vietnam.

Ratings for end-user markets also showed increased optimism compared with the fall 2012 Survey, but the changes were not as drastic as those for regions/countries. Respondents were asked to rate prospects for 11 end-markets on the same scale of 1 to 5. Average ratings rose for all end-markets compared with the fall 2012 Survey, even for academia and government. Similarly, the average ratings for ten end-markets rose compared with the spring 2012 Survey. However, unlike the average ratings for regions/countries this spring, no end-market was rated higher on average than 3.9. Three were rated below 3 on average: electrical/semiconductor, academia and government.

The chemical, environmental and metals/mining end-markets showed the largest increases this spring in average ratings compared with last fall, with each rising six-tenths of a percentage point. The energy and food end-markets tied for the highest rating overall of 3.9. Food was also the top end-market in the fall 2012 survey.