Outlook

The strong expansion of the world economy will continue in 2006. Global growth is again likely to exceed 4%. However, the pace of growth is expected to weaken in the course of the year. In the USA, in particular, a slowing of the real estate boom could adversely affect private consumption. Asia’s economic momentum will continue unabated. The Chinese economy is again expected to record high growth in 2006, and Japan is likely to continue its economic recovery. In the euro zone the positive trend will continue. Stronger economic growth is also forecast for Germany. Favorable trends are expected above all for exports and business spending. Toward the end of the year, the increase in value added tax will bring forward consumer spending. The economic risks caused by high raw material and oil prices will continue in 2006.

We expect the following developments on the major markets:

• With the overall economic environment set to remain favorable, we expect the growth of the global steel market to continue. As in the past, this growth will be driven to a large degree by China and the other emerging countries, although other regions are also expected to perform well. For the current year world crude steel production is forecast to increase by 6% to 1,200 million metric tons. In our Western European core market all the signs point to increasing steel consumption in 2006 following stagnation last year. In addition, positive stock cycle effects are expected. This will lead to an increase in steel production. In Germany production is expected to be well in excess of 45 million tons. Steel prices will continue to be determined mainly by high raw material and energy costs.
• The market for stainless steel flat products is set to recover in 2006. World market supply is expected to show 8% growth, albeit from a weak prior-year level. Demand is forecast to pick up in Western Europe, North America and Asia. The market for nickel-base alloys will remain positive.
• World auto production is expected to rise to over 68.5 million vehicles in 2006. The growth by around 2 million cars and trucks will be concentrated on the emerging countries in Asia. In North America and Western Europe, vehicle production will exceed the prior-year level only slightly, if at all. In Germany production is expected to remain stable.
• Growth in the international mechanical engineering sector is likely to slow in 2006. Production in Germany is expected to increase by only 2%. Higher growth rates are forecast for the USA, Japan and in particular China.
• The construction sector is expected to expand above all outside the industrialized countries in 2006. The main growth regions will again be the emerging countries of Asia as well as Central and Eastern Europe. The construction market is expected to weaken in the USA and gain strength in the euro zone and Germany.

We expect the generally positive business performance to continue in the further course of the year. For fiscal year 2005/2006 we currently plan sales of over €44 billion. Based on the very good 1st-half performance, for the full year we are already aiming to exceed our new medium-term target for earnings before taxes – excluding major nonrecurring effects – of €2 billion.