Global Growth Concerns Ease
Pessimism over the sustainability of global growth this year has subsided as it is now widely acknowledged that softer data from some of the developed countries in recent months were influenced by the severe winter weather. U.S. consumer sentiment has shown improvement in the most recent surveys while businesses investments are picking up. GDP growth numbers in the Euro-zone and Europe for the last quarter were ahead of expectations and the region is expected to sustain the pace this year. Manufacturing output growth accelerated further in most developed countries during February, but services activity increased at a slower pace in the U.S. Among the emerging countries, last quarter GDP growth for India and Thailand fell short of expectations while Brazil came up with a positive surprise. Factory output growth continued to expand at a modest pace across most large emerging countries, except China and Korea.
Renewed confidence over global economic growth helped equity prices recover from the previous month’s decline. Emerging market currencies that faced volatility in January have stabilized, and helped rebuild investor sentiment. As expected, the U.S. Federal Reserve decided to pare down its bond purchases further and has not changed its economic outlook. The European Central Bank has left its policy rate unchanged, and reiterated its readiness to introduce further policy measures when needed. Brazil hiked interest rates again, as inflation risks remain elevated even though the economy is forecast to grow at a slower pace when compared to last year.
Global industry Spotlight for the Month: Pharmaceuticals
The global pharmaceutical industry continues to see stable growth as demand continues to expand across most markets, especially in the large emerging countries. Large companies are striving to limit revenue losses from patent expiries while generic manufacturers are expanding their product range.
The global pharmaceutical industry has seen major changes in recent years, though the sector has been one of the least affected by the recession. While large manufacturers created out of earlier consolidation efforts continue to dominate the industry, generic drug producers have gained market share as several major drugs have gone off-patent in recent years. At the same time, the biopharmaceuticals segment has seen the fastest growth as new approaches to discovering and developing new drugs have been broadly successful.
Some of the large manufacturers faced significant revenue losses in recent years as several blockbuster drugs went off-patent, their numbers peaking in 2011 and 2012. Manufacturers have responded with efforts to protect their market share by positioning their products as superior to generic competitors, though per unit prices decline substantially after patent expiry. To replenish their product pipeline, major manufacturers are forging partnerships at various stages of research and development. In addition, these companies have also sought to acquire smaller firms with proven research capabilities or pipeline products with new drugs that are in an advanced stage of development.
Meanwhile, generic manufacturers have taken advantage of the patent expiries and have seen significant increases in their global market share. The growing preference for lower cost products among government-controlled healthcare systems in the developed countries has also helped the growth of generic producers. Even countries such as Japan, where generic drug penetration was relatively low, are introducing regulatory changes to facilitate increased use of generics. However, intense competition has reduced the earnings potential for the generic segment and some of the leading companies are looking at acquisitions to build scale. In addition, regulatory interventions to address quality concerns in drugs manufactured in locations such as India have also been a challenge for select generic producers.
The industry’s future growth is likely to be driven by the aging population in the developed world that could increase healthcare demand, as well as the growing income levels in the emerging countries that could boost demand for better quality healthcare products and services. The industry is expected to sustain its spending on research and development to support the product pipeline, which would be crucial in a more competitive environment. Future regulatory efforts in the developed countries are likely to focus on reducing healthcare costs that have spiraled up in recent years. On the other hand, regulators in emerging countries are likely to give preference to improving healthcare access in addition to ensuring affordability.
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