Analytical instrument and lab product company executives’ expectations have diminished since last fall, according to the latest IBO Business Climate Survey. This is not a surprise considering updated macroeconomic forecasts. In April, the International Monetary Fund revised its January projections for global growth downward two-tenths of a percentage point to 3.2%. This followed a February revision by the Organization for Economic Co-operation and Development that lowered its forecast from world growth from November 2015 (see IBO 1/15/16) by 0.3 percentage points to 3.0%.

The Survey of IBO subscribers was conducted by email in late May. A total of 12 surveys, representative of major instrument and lab product companies, were received.

Asked about the outlook for industry sales for the next six months (defined as the second and third quarters), the results mirrored last fall’s survey, with 58% of respondents expecting sales to remain the same (defined as flat to 2% growth) and 42% expecting them to increase moderately (defined as 3%–7% growth). In spring 2015’s survey (see IBO 5/31/15), 57% of respondents expected sales to increase moderately.

Although the overall sales outlook did not change among executives, the outlook for all 12 end-user markets and most of the 9 geographic markets declined this spring compared to the fall 2015 survey (see graphs, page 3).

In total, the average rating for the end-user markets was 2.9 this spring, compared to 3.3 last fall. The largest decline in average ratings was for metals and mining, and energy. The six month outlook for each dropped a whopping eight-tenths of a percentage point, as each market showed little sign of a rebound. Surprisingly, the outlook for the pharmaceutical market declined 0.7 percentage points. The clinical/diagnostics market received the smallest average-rating decline, down just one-tenth of a percentage point.

As with last fall, biotechnology received the highest average rating among end-markets. Besides the addition of pharmaceutical and displacement of energy, the top five markets remained the same as in the fall 2015 survey.

The average rating for all geographic markets totaled 3.0 in this survey, versus 3.5 last fall. The bright spots were China and India, whose average ratings increased two-tenths of a percentage point and one-tenth of a percentage point, respectively. Southeast Asia showed no change in average rating. However, Japan and Western Europe’s average ratings each plummeted 0.8 percentage points. They were among the five regions or countries that received average ratings of less than 3. Joining the top five compared to fall 2015 was the Middle East, as Japan fell to eighth place. As with last fall, North America and India were the geographic markets with the highest average ratings.

To gauge the perceived effects of five selected positive and five selected negative factors on industry sales growth this year, IBO asked respondents to rate each factor on a scale from 1 to 5, with 1 indicating no impact and 5 indicating a severe impact. For the five positive factors listed, “biopharmaceutical research spending” received the highest average rating (3.7), followed by “food safety spending” (3.3), “new product introductions” (3.3), “government spending in China” (3.2) and “price increases” (2.7). The results indicate the strength of key end-markets. Notably, the average rating for Chinese government spending suggests a relatively average impact compared to earlier periods.

China was also represented among the five negative factors that respondents were asked about. “Economic conditions in China” (3.5) received the lowest average rating among the five factors but its average rating of more than 3 suggests this factor may not be completely offset by the positive impact of Chinese government spending. As for the other negative factors, “economic conditions in certain emerging markets (Brazil, Russia, etc.)” received the highest average rating (4.2), and was the only factor to receive an average rating of greater than 4, indicating little expectations of any improvement for such regions. The three other factors all received average ratings above 3, suggesting serious concerns. In order, “price competition” (3.9) was followed by “global macroeconomic conditions” (3.7) and “industrial market weakness” (3.6). Interestingly, in contrast to the positive factors, the product-related condition of “price competition” was the second highest rated factor.

Finally, IBO asked respondents about expected M&A activities this year, as many publicly held instrument companies continue to reiterate their interest in bolt-on acquisitions. Sixty-seven percent of respondents expect M&A to remain the same in 2016 compared to 2015 (see IBO 11/15/15). Twenty-two percent expect it to increase.

Executives were then asked to rank five selected factors as to their possible influence on analytical instrument and lab product industry M&A activities this year. As the graph below shows, “application or end-market expertise/focus” was ranked the highest by the largest percentage of respondents. However, given the small sample size, the results show little clear consensus, except that geographic expansion is not expected to be especially influential.