With the first half of the year behind us, let us reflect on the state of the analytical and life science instrumentation and lab products market, how it has developed thus far and what is in store for the rest of 2015. The original January forecast (see IBO 1/15/15) was published without the benefit of complete information from the fourth quarter of 2014. Nevertheless, there were clear macroeconomic indicators, including political developments and the depreciation of the euro and yen, that caused IBO to moderate its growth prospects for 2015. The net benefit from falling oil prices as well as pent-up demand and backlogs were expected to combat these adverse effects. Additionally, China’s growth was expected to slow yet still experience a solid increase in 2015.

The year started off somewhat on target, with strong organic growth, particularly in North America and its public sectors. Europe also performed well in local currencies, while funding delays weakened Japan. Nevertheless, organic growth could not offset the adverse effects of currency translations on sales in Europe, Japan and some emerging markets, such as India, Brazil and Mexico.

Macroeconomic conditions added to uncertainties. In January, the International Monetary Fund (IMF) revised its world economic outlook to 3.5% for 2015, down from its October forecast of 3.8%. In July, the IMF lowered its forecast for 2015 again to 3.3%, indicating slowness in the first half of the year but a gradual acceleration for the remaining months of 2015, particularly in advanced economies. It cited improving confidence, easier financial conditions and a more neutral fiscal policy in the euro area. However, it indicated that emerging market growth is expected to slow in 2015 due to tighter financial conditions, but should rebound in 2016.

In July, the IMF estimated world growth of 3.4% in 2014, 3.3% in 2015 and 3.8% in 2016, with the US driving growth at 2.4%, 2.5% and 3.0% for 2014, 2015 (see table, page 11) and 2016, respectively. The euro area is rebounding due to an increase in domestic demand and inflation. While the Greece bailout will take a toll, the country accounts for less than 2% of Eurozone GDP and less than one half of 1% of world GDP. Although sluggish spending continues, Japan’s prospects are improving, with Abenomics and strong capital investments helping to lift the country out of its doldrums. Japan’s GDP growth is expected to rise 0.8% and 1.2% for 2015 and 2016, respectively.

According to the IMF, growth in emerging markets and developing economies is expected to slow from 4.6% in 2014 to 4.2% in 2015. China is forecast to finish 2015 up 6.8%, and India will grow 7.5%. Overall, for 2016, emerging markets are expected to rebound to 4.7% growth, particularly with projected improvements in economic conditions in Russia, the Middle East and North Africa.

IBO’s original forecast for analytical and life science instrumentation industry sales in US dollars in 2015 was a growth rate of 3.7%, which was a deviation from the upward trend from 2012 to 2014, when growth was 2.4%, 3.5% and 4.9%, respectively.

So far, in 2015, most suppliers have exuded a positive sentiment, with growth for capital equipment, aftermarket products and service. In fact, many industry participants have experienced record sales in local currencies. However, with currency translations reducing overall market growth by 7.2% in the first quarter, industry sales recorded only a modest increase. Similar dynamics carried into the second quarter with even stronger currency effects, which reduced sales by 7.8%. However, suppliers are optimistic about the prospects in the second half of the year being better than the first half at constant currencies. Nevertheless, many companies indicate that sales will be in line with last year including currency, resulting in flat growth overall.

Based on these indicators, macroeconomic conditions and, primarily, currency changes, IBO is revising its 2015 forecast downward to 1.1%, a significant reduction from the original forecast. Although confidence in the market is relatively strong, the effect of currency translation mutes gains from robust product sales. These effects will likely have a lesser impact on the overall market in the second half of the year, particularly the fourth quarter.

The regional forecast for 2015 has dramatically shifted as well due to currency changes, lower oil prices and geopolitical conditions. North American instrument demand is on pace to increase 7.1% in 2015, while demand in Europe and Japan are projected to finish the year down 4.8% and 6.2%, respectively. Asia is expected to post higher growth than originally forecast, with India leading growth for the year due to solid demand from generic drug manufacturers. India is benefiting from lower oil prices, as well as from its agriculture, mining and power sectors. Latin American demand is forecast to decline 9.4% for 2015, particularly with a few large economies (Argentina, Brazil and Venezuela) facing recessions.

Instrument sales growth estimates were also revised downward including currency for each application sector. The pharmaceutical and biotechnology sector, and applied markets continue to fuel growth, with sales expected to increase 2.6% and 2.4%, respectively. Excluding currency, demand will rise in roughly double digits. Applied R&D as well as pent-up demand from QC labs are driving growth in the pharmaceutical and biotech market. The applied markets are also being buoyed by continued strength in clinical research and diagnostics, and agriculture and food applications, partially offset by the environmental sector. Sales to industrial markets are forecast to decline, submerged by the metals and mining, oil and gas, and energy sectors. The public sector, primarily government and academia, is expected to be flat for the year, with improving demand in North America offset by Europe and Japan.

Most of the growth forecasts for instrument technologies are adjusted to be slower than the original forecasts. Nevertheless, key growth technologies, including life science instrumentation and MS, are expected to remain robust in 2015. Gene editing (i.e., CRISPR/Cas9) is fostering robust growth for life science tools, including DNA sequencing, PCR, transfection techniques, nucleic acid preparation and cell analysis tools. Other growth areas include super resolution microscopy, laboratory management software and informatics, and laboratory services.