Industry Report 12/2022

INDUSTRIAL POLICY DOSSIER

Industry Report

Industrial production and trade in the individual industries

▪

Production levels in manufacturing remain stable this year thanks to consistently high order backlog. The BDI expects manufacturing output to rise by a marginal 0.25 percent this year, following a rise of 4.7 percent last year. The outlook for 2023 is bleak. More and more manufacturing enterprises are struggling with the high energy prices and geopolitical uncertainties.

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Production in energy-intensive sectors sank from January to September. The drop amounted to 2.3 percent in the metal producing and processing firms, 3.7 percent among manufacturers of rubber and plastic products 3.7 percent, and a significant 8.2 percent in the chemical industry. The strongest growth was recorded by other transport equipment (up 6.5 percent), electrical and electronics (up 4.2 percent) and the pharmaceutical industry (up 3.8 percent).

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In the European Union, industry has continued its recovery during the third year after the outbreak of the Covid pandemic. Another year of sizeable expansions of production in pharmaceuticals together with strong growth in mechanical engineering are propping up industrial activity.

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In 2022, German exports will rise by just 2.5 percent overall following price adjustment (2021: up 9.7 percent), according to our estimates. German foreign trade has suffered considerably from supply bottlenecks and the uncertainty caused by the outbreak of the war in Ukraine is further exacerbating the situation

▪

We expect world trade in 2022 to rise by four percent. The export of goods from emerging countries is set to rise much more steeply than from advanced economies.

Content

Global industrial production

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Advanced economies 3

Emerging economies 4

United States: ambiguous signals towards year end............................................................................ 5

China: zero Covid strategy curbs growth 6

Japan: industrial activity picks up towards year end 7

South Korea: lean expansion on back of strong first six months .......................................................... 8

United Kingdom: end of descent not yet in sight 9

European Union: industry continues upward trend but at slower pace 10

Germany: supply bottlenecks ease up slightly.................................................................................... 11

France: production still below pre-pandemic levels in many industries 12

Italy: weak growth in chemicals and vehicle production 13

Spain: production faltering towards the end of the year...................................................................... 14

Global trade 15

Development of German exports 16

Industries in Germany ......................................................................................................................18

Automotive industry: moderate recovery in production 18

Construction industry: 2023 set to be difficult ..................................................................................... 19

Building materials industry: business prospects at all time low 20

Chemical industry: business under pressure 20

German electro and digital industry: industry remains robust in the face of economic slowdown...... 21

Digital sector 23

Foundry industry: uncertain winter ahead with good level of orders 24

Ceramics industry................................................................................................................................ 24

Aviation 25

Machinery manufacturing doing well in challenging times 27

Nonferrous metal industry................................................................................................................... 27

Pharmaceutical industry 28

Steel and metal processing: third quarter production one percent higher year on year 29

Textile and clothing industry................................................................................................................ 30

Imprint ................................................................................................................................................31

Global industrial production

Uncertainty caused by

the Ukraine

war is leaving its mark worldwide

After recovering from the slump triggered by the pandemic in 2021, global industrial activity entered calmer waters this year. According to figures published by the Netherlands Bureau for Economic Policy Analysis (CPB), global industrial production increased by 2.6 percent in the second quarter year on year following an increase of 4.4 percent in the first quarter. In the first two months of the third quarter, the pace of expansion accelerated slightly. As of August, industrial production was 3.5 percent higher than in the same period last year.

In the further course of the year, however, industrial activity is likely to slow down. The purchasing managers’ index for manufacturing dropped to 49.8 index points in September, thus leaving expansionary territory for the first time in 26 months. Uncertainty surrounding the war in Ukraine has undoubtedly contributed to the gloomier prospects. The index continued its downward trend in October. A moderate recovery could set in now that the global supply chain problems have eased somewhat. For the year overall, an increase in global industrial production of just over three percent is possible if current production levels are maintained for the remainder of the year.

World: Industrial production*, Purchasing Managers Index

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Emerging economies Advanced economies Purchasing Managers Index seasonally adjusted (left axis)

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*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis, own calculations

Advanced economies Industry grows robustly in the United States and Asia while Europe stagnates

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In the advanced economies, industrial production increased by 2.8 percent in the first quarter of 2022, year on year. This growth rate remained steady in the second quarter (up 2.4 percent) and in the first two months of the third quarter. As of August, industrial production was 2.5 percent higher than in the same period last year. However, developments over the year were very diverse in the various regions. The group of other advanced economies stepped up industrial production the most, with a rise of 4.8 percent, followed by the US industry, which recorded a similar increase of 4.5 percent. While

industry in Japan curbed production by one percent, industry in the other advanced Asian countries grew by a sizeable 4.2 percent. In Europe, industrial production in the euro area had only increased slightly as of August, year on year (up 0.6 percent). Industrial activity in the United Kingdom dropped 2.5 percent over the same period.

A slowdown in industrial activity is expected for the further course of the year. The purchasing managers’ index for this group of countries dropped for the eighth month in a row. In September, it was only just hanging on to expansionary territory at 50.1 index points before dropping down to 48.8 index points in October, its lowest level in 27 months. In view of these sentiment indicators, we expect production to stagnate in the fourth quarter. This would bring the overall result for 2022 to just over two percent growth in industrial production

Advanced economies: Industrial production*, Purchasing Managers Index

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other Advanced economies Euro area Japan USA

Purchasing Managers Index seasonally adjusted (left axis)

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*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

Emerging economies Growth engines in the Middle East and Asia

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Industrial production in emerging countries started out 2022 with robust growth of 6.1 percent compared to the previous year. Restrictions in China to stop the spread of the pandemic and the outbreak of the war in Ukraine brought growth in industrial activity down to 2.8 percentage points in the second quarter. Growth accelerated again in the first two months of the third quarter bringing industrial production up 4.3 percent as of August 2022 compared to the first eight months of the previous year. Due to the steep price increases for fossil fuels, production in Africa and the Middle East registered the highest growth in this period, going up by 8.8 percent. Industrial production in the Asian emerging countries excluding China grew slightly above average at 4.5 percent. The Chinese industry has regained its footing and increased output by 3.7 percent in the first eight months of the year. In Latin America, industrial production grew by 3.3 percent in the first eight months of the year, the second

year of this upward trend. The lowest growth in this group of countries was recorded by industry in Central and Eastern Europe, but it was still at plus 2.2 percent as of August

China’s industry has been the biggest driver of growth in recent years, but this year, the industries of Africa and the Middle East as well as the other Asian emerging countries seem set to take over this role. The manufacturing purchasing managers’ index for industry in the emerging countries has trended downwards for three months after reaching its highest level of the year in June. In September and October, the index even fell below the threshold value of 50 to contractionary territory at 49.4 and 49.8 index points respectively. Despite the slowdown on the horizon for the fourth quarter, we still expect industrial production in emerging countries to grow by about four percent in 2022 overall

Purchasing

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Africa/Middle East Latin America Central and Eastern Europe Asia (excluding China) China

Purchasing Managers Index seasonally adjusted (left axis)

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*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

United

States:

ambiguous signals towards year end

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The US industry (industrial production excluding construction) stepped up its pace of growth slightly at the turn of the year 2021/2022. In the first quarter, the production index increased by 4.8 percent compared to the previous year. Growth was fuelled primarily by machinery manufacturing, while growth in the chemical industry can be attributed to the low base level caused by bad weather. In both the second and third quarter 2022, the pace of growth continued at over four percent. For the first nine months of the current year, industrial production thus rose by 4.6 percent compared to the same period the previous year The manufacturing sector expanded by 4.1 percent over the same period

Among the individual industries in the manufacturing sector, machinery manufacturing recorded the strongest growth in the first nine months of the year, expanding by 6.8 percent, together with vehicle production, which grew by 6.9 percent. Growth in the car production segment increased by as much as 8.3 percent. The production of electronic devices and equipment increased by 4.8 percent, and the production of data processing equipment by 3.4 percent The chemical industry expanded its

Emerging economies: Industrial production*,

Managers Index

production by 4.4 percent, and by five percent excluding pharmaceuticals. The food industry displayed below average growth in production of 1.9 percent

The most recent figures show a divided picture. While manufacturing output picked up again in the two month comparison August/September 2022 compared to the same period last year (up 0.9 percent), the manufacturing purchasing managers’ index recorded a clear drop in October, falling close to the edge of expansionary territory at 50.4 index points. We do not expect production to decrease in the fourth quarter so manufacturing output should increase by four percent year on year.

United States: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

China: zero Covid strategy curbs growth

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At the start of 2022, Chinese industry maintained its upward path. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production rose by 6.5 percent in the first quarter 2022 compared to the previous quarter. Year on year, growth was on a similar scale. According to official Chinese figures, producers of data processing equipment and machinery manufacturing exhibited the strongest growth while automotive production almost stagnated. In the second quarter, industrial production dropped due to the Chinese government’s zero Covid strategy. Production drops were recorded above all by the automotive sector, metal processing and textiles. At the same time, electronics and chemicals expanded their activity. Across all industries, industrial production in the second quarter 2022 was down on the previous quarter by almost seven percent

Production levels recovered slightly at the start of the second half of the year. According to the CPB, China’s industry increased its output by 4.1 percent in the first two months of the third quarter. Compared to the previous two months (May/June), production was up by 1.1 percent. While producers of data processing equipment and machinery manufacturing maintained the same growth rate as in the second quarter, vehicle production recorded double digit growth, thereby somewhat compensating

for the drop in production in the first six months of the year. Production in the textile industry, in contrast, continued to decline

The manufacturing purchasing managers’ index has dropped for four consecutive months following its highest level this year in June. In August it dropped to 49.5 points, signalising a downturn in production. However, it had recovered from this low by the start of the fourth quarter Many indicators suggest that production will not fall further in the fourth quarter 2022. For 2022 overall, we expect industrial production to rise by about four percent despite the dip in growth seen in spring.

China: Industrial production*, Purchasing Managers Index

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2018 2019 2020 2021 2022 Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

Japan: industrial activity picks up towards year end

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Japan’s industry did not continue its uptrend into 2022. In the first quarter, industrial production (excluding construction) contracted by a marginal 0.7 percent year on year In the second quarter production fell further, going down 3.6 percent. A robust recovery then set in in the middle of the year, with production recording an increase of over five percent. In the first nine months of the year overall, production was running level with last year

In the manufacturing sector, output was slightly down year on year as of September 2022. Among the individual industries, production in information and communication electronics took the biggest tumble, at minus 13.5 percent. Activity in vehicle production also pointed down, shrinking by four percent. Machinery manufacturing built on its good performance of last year and increased production by 7.4 percent. The chemical industry together with pharmaceuticals managed to increase output by two percent, although chemicals alone (basic chemicals) were down 2.5 percent on last year. Production in the paper industry also dipped by a marginal 0.3 percent and the food industry by one percent.

Japan’s industry picked up again towards the end of the third quarter. In the two monthly comparison August/September 2022, production was up on the previous two months by 3.1 percent following

calendar and seasonal adjustment. Machinery manufacturing and electronics performed particularly well. The easing up of supply bottlenecks has certainly helped the situation here. The manufacturing purchasing managers’ index is telling a different story though, dropping for the seventh consecutive month. However, it remained in expansionary territory in October at 50.7, so production should stabilise in the fourth quarter. This would bring the annual increase in industrial production to just over one percent.

Japan: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

South Korea: lean expansion on back of strong first six months

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South Korea’s industry started out 2022 with an increase in production of 5.4 percent in the first quarter. Pharmaceuticals and electronics both saw output rise strongly. In the second quarter, the rate of growth slowed down slightly but remained robust at over four percent. Alongside pharmaceuticals and electronics, vehicle production also increased its activities again. Production pointed down in metal production, machinery manufacturing and in the chemical industry. At the start of the second half of the year, industrial activity started to falter. Production fell steeply in electronics, especially, and continued its slide in the chemical industry.

Production in the manufacturing sector increased by 3.5 percent in the first nine months of the current year. Among the individual industries, pharmaceuticals experienced the strongest rise, surging up 15.1 percent. The electronics industry also recorded double digit growth, picking up 11.6 percent. South Korea’s vehicle manufacturers booked an increase in production of 7.5 percent as of September despite a weak start to the year. While machinery manufacturing still registered a lean rise of 1.6 percent, the metal processing industry and chemical industry both saw production decline by somewhat more than five percent.

For the further course of the year, production levels are set to be subdued. In the two-month comparison August/September 2022, industrial production dropped 2.8 percent compared to the previous two months following calendar and seasonal adjustment. The manufacturing purchasing managers’ index has been below the 50 point threshold and indicating contraction for four months but

did rise by 0.9 index points to 48 2 in October Despite bleaker prospects towards the end of the year, industrial production should increase by somewhat more than three percent in 2022 overall on account of the strong performance in the first six months of the year

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

United Kingdom: end of descent not yet in sight

In the United Kingdom, industrial output continued to fall at the start of 2022. In the first quarter, industrial production (excluding construction) was down both quarter on quarter and year on year. In the two following quarters, the downward trend accelerated with production decreasing by 2.5 percent and 3.4 percent respectively. In the first nine months overall, industrial production was 2.5 percent down on the same period last year.

Manufacturing output was even more negative, sliding down 4.1 percent over the same period. Among the individual industries, the metalworking industry recorded the most pronounced slump, going down by 12.9 percent, followed by producers of electrical equipment (down 12.4 percent). A double digit drop in production was also registered by machinery manufacturing (down 11.1 percent). Output in vehicle production also dropped by a sizeable 9.3 percent The chemical industry reduced its output by 2.1 percent. The production of pharmaceutical products also declined and was down by 2.1 percent as of September. Producers of metal products and food managed to swim against the downward trend and increase output. Production among furniture makers even increased by eight percent.

The current downward trend has not hit bottom yet. The two month comparison August/September 2022 shows a drop in production of 1.6 percent compared to the previous two months after calendar

Source: Macrobond

South Korea: Industrial production*, Purchasing Managers Index

and seasonal adjustment. The manufacturing purchasing managers’ index, which was already in contractionary territory, fell to its lowest level in 29 months in October. Industrial activity is thus set to contract further in the fourth quarter and take the annual result for production to minus five percent compared to the previous year

United Kingdom: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

European Union: industry continues upward trend but at slower pace

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The industrial sector in the European Union has managed to continue its recovery in the third year following the outbreak of the pandemic. In the first quarter 2022, industrial production (excluding construction) increased by 1.2 percent year on year. Production increased across all industries apart from electronics and vehicle production. In the further course of the year, the pace of growth picked up going from 1.7 percent in the second to 2.9 percent in the third quarter, bringing industrial production in the EU up 1.9 percent in the first nine months of the current year compared to the same period last year

In the manufacturing sector, production also expanded by 1.9 percent in the first nine months of the current year. Among the key industries, machinery manufacturing recorded the biggest growth, going up by 4.7 percent. The pharmaceutical industry has been on an upward path for almost twenty years. As of September, production in this industry was up by an impressive 8.7 percent. Vehicle producers more than compensated for the production cuts in the first half of the year caused by supply bottlenecks with a strong performance in the third quarter As of September, production was up by two percent. Production of other transport equipment was a meaty six percent up on the same period last year. Electronics failed to match the unusually high levels of production recorded last year and was two percent lower. Production in energy intensive industries was down somewhat due to soaring energy prices. In the chemical industry, output dropped by 3.5 percent from January to September, while producers of rubber and plastic products produced 0.8 percent less. The less economically sensitive but also energy intensive food, beverages and tobacco industry managed to increase production by

3.3 percent over the same time period. Metalworking companies also continued to expand production, albeit with a marginal rise of 0.2 percent as of September

The latest figures indicate a slowdown in industrial activity. In the two month comparison August/September 2022, industrial production in the EU still rose 1.4 percent compared to the previous two months following seasonal and calendar adjustment. However, the manufacturing purchasing managers’ index has pointed down for seven consecutive months after reaching its highest level of the year in March. It has been below the 50 point threshold in contractionary territory since July. We expect production levels to trend sideways in the fourth quarter, which should take industrial production levels in the EU for the year overall to just over two percent higher than last year.

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Industrieproduktion (rechte Achse) Einkaufsmanagerindex saisonbereinigt (linke Achse)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Germany: supply bottlenecks ease up slightly

In Germany, the economic recovery of industry started to falter again at the turn of the year 2021/2022. In the first quarter 2022, industrial production (excluding construction) dropped one percent compared to the same period last year despite high order backlogs. In the second quarter, production continued to decline, falling by a further 1.3 percent. The situation improved in the third quarter, with production pointing up thanks to easing supply bottlenecks in the automotive industry and strong growth in machinery manufacturing and electronics. This was not enough to fully compensate for the weak performance in the first six months of the year In the first nine months of the year overall, industrial production was down on the same period last year by a very slim 0.2 percent

In the manufacturing sector, production was also slightly down between January and September compared to last year. Among the individual industries, the strongest growth was recorded by other transport equipment at 6.5 percent, electronics at 4.2 percent and pharmaceuticals at 3.8 percent. Output in vehicle production rose 1.3 percent following a decrease of just over three percent the previous year. Machinery manufacturing tread water (down 0.3 percent). The economically less sensitive food, beverages and tobacco industry expanded by a narrow 1.5 percent. Production in

Source: Macrobond

European Union EU27: Industrial production*, Purchasing Managers Index

energy intensive industries recorded tangible drops in production. Production among metal producers and metalworking companies was down by 2.3 percent as of September, among producers of rubber and plastic products by 3.7 percent, and in the chemical industry by a steep 8.2 percent.

The outlook for the remaining three months of the current year remains troubled. Manufacturing companies still have high order backlogs but are also facing high energy prices and geopolitical uncertainties. The latest figures for industrial production in the two month comparison August/September 2022 show a slight rise of 0.4 percent compared to the previous two months and a sizeable expansion of 3.7 percent year on year. The positive trend was fuelled primarily by the strong figures from vehicle manufacturers. Prospects for the medium term are somewhat bleaker. The manufacturing purchasing managers’ index has fallen steadily since May 2022 going from one annual low to the next, down to only 45.1 index points in October 2022 at last count Based on the trend in orders and industry estimates, we still expect production in the current year to increase marginally, by around 0.25 percent

Germany: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

France: production still below pre pandemic levels in many industries

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France’s industry has only gained momentum slowly since the beginning of the year. In the first quarter 2022, industrial production (excluding construction) nudged up by a minimal 0.2 percent year on year. In the second quarter, production was narrowly down on the previous year. At the start of the second half of the year, industrial activity then started to pick up steam. Industrial output was up by 0.7 percent year on year in the third quarter but still just over four percent lower than before the outbreak of the Covid pandemic. In the first nine months of the year, production was up by a total of 0.3 percent compared to the same period last year

In the manufacturing sector, output increased by 1.8 percent over the same period. The strongest growth in production was recorded by the electronics industry, at 4.5 percent, and other transport equipment, at 3.6 percent. Despite the weak performance in the first six months of the year, vehicle

production booked an above average rise in output of 2.6 percent as of September. In the less economically sensitive food industry, production expanded 0.9 percent, and in pharmaceuticals, was up by 2.1 percent. The metalworking industry curbed its production by a slim 0.3 percent. Machinery manufacturing and the chemical industry reduced output by 1.5 percent and 1.8 percent respectively in the first nine months of the year. Compared to the fourth quarter 2019, the last quarter before the outbreak of the Covid pandemic, electronics and pharmaceuticals are the only industries in France that have so far managed to regain and surpass their pre pandemic levels.

The latest figures on production are not aligned with the sentiment indicators by a long shot. In the two month comparison August/September 2022, industrial production was up on the previous two months by two percent following seasonal and calendar adjustment. This also constituted the fourth consecutive rise. At the same time, the manufacturing purchasing managers’ index has not only fallen for two months in a row but, at 47.7 and 47.2 index points respectively, is below the 50 point threshold and well into contractionary territory For 2022 overall, manufacturing output in France should increase by around two percent and narrow the gap between the production levels in 2019.

France: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Italy: weak growth in chemicals and vehicle production

Italy’s industry started off 2022 with expanding production (industrial production excluding construction). Industrial production increased by 1.5 percent year on year in the first quarter before gathering slightly more steam and rising by 1.9 percent in the second quarter. Output was also higher year on year in the third quarter despite slowing down somewhat. All in all, industrial production in the first nine months of the year was 1.2 percent higher than in the same period last year.

The manufacturing sector experienced a similar rise in production over the same period, going up 1.3 percent. Among the individual industries, the pharmaceutical industry posted the strongest growth by far, going up by eleven percent, followed by other transport equipment and the food industry which

expanded by 3.8 percent and three percent respectively. Robust growth was also recorded by machinery manufacturing, up 2.7 percent, and electronics which managed to increase production year on year despite its record performance in 2021. Vehicle makers increased their output markedly in the third quarter but production as per September was still 1.3 percent down year on year. This has also affected the supplier industries. The metalworking industry curbed its production by 4.6 percent and output in the chemical industry dropped by 2.4 percent. All industries apart from chemicals, metalworking and vehicle production were above their fourth quarter 2019 production levels in the third quarter 2022.

In the further course of the year, production is heading for stagnation. The manufacturing purchasing managers’ index dropped to its lowest point in the year in October and, at 46.5 index points, is well below the expansionary threshold of 50 points. The trend in production indicated by the most recent figures is largely positive though. In the two month comparison August/September 2022, production was up both on the previous two months and year on year. We therefore expect production to rise a little in the final quarter of the year. For the year overall, production should increase by just over one percent.

Italy: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Spain: production faltering towards the end of the year

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Spain’s industry continued to recover at the beginning of the year. In the first quarter 2022, industrial production (excluding construction) recorded an increase of 1.7 percent year on year. The gap between the pre pandemic level (fourth quarter 2019) slimmed down to only 0.2 percentage points as a result. Activity then accelerated markedly over the summer. Production increased by 4.7 percent in the second quarter and 4.8 percent in the third quarter, both year on year. All in all, Spain’s industry managed to increase production by 3.7 percent in the first nine months of the year compared to the same period last year

In the manufacturing sector, output rose by 2.9 percent over the same period. Among the key industries, production in machinery manufacturing and pharmaceuticals recorded the highest growth, both expanding by 6.2 percent. Above average growth in output of over five percent was also recorded by vehicle production and other transport equipment. The electronics industry was able to build on its good performance last year with a further increase in production of 3.6 percent. Surprisingly, the metalworking industry was not able to benefit from this positive trend and recorded a decrease in production of one percent. Output in the chemical industry was also down by 1.7 percent compared to the same period last year. The less economically sensitive food, beverages and tobacco industry had increased its production by 2.5 percent year on year as of September 2022.

The latest available figures indicate a slowdown in economic momentum. Most recently, production in the two month comparison August/September 2022 slipped down 0.3 percent compared to the previous two months following seasonal and calendar adjustment but was up by more than two percent year on year. The manufacturing purchasing managers’ index has been just below the 50 threshold and thus indicating contraction since July and fell by more than three index points in October. We therefore do not expect to any gains in production in the fourth quarter. For the year overall, Spain’s manufacturing sector should nonetheless manage to increase production by up to three percent year on year.

Spain: Industrial production*, Purchasing Managers Index

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Industrial production (right axis) Purchasing Managers Index, seasonally adjusted (left axis)

*Production index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Global trade

The war in Ukraine briefly sapped the strength out of global trade In March 2022, the global trade volume was down on the previous month by 1.3 percent and fell another 0.1 percent in April, according to the Netherlands Bureau for Economic Policy Analysis (CPB). In May, trade activity recovered to such an extent that it already exceeded the level seen before the outbreak of the Russian war of aggression. As of August, the global trade volume was 4.4 percent higher than in the previous month.

In the first eight months of the current year, emerging countries exported 5.4 percent more goods in total than one year previously. With an increase of 10.9 percent, exports from Africa and the Middle East experienced the highest growth, followed by Asian emerging countries (excluding China), whose exports rose 8.8 percent. China’s exports increased by a below average rate of 2.4 percent. Exports from Central and Eastern Europe only expanded by a slim 0.4 percent. Exports from Latin America had increased by an above average 6.6 percent as of August.

World: Exports according to region of origin

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Advanced economies Emerging economies

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Index: two month average, after calendar and seasonal adjustments, in percent, year on year

Source: Macrobond

Exports from advanced economies were 2.6 percent higher in total than in the same period last year as per August 2022. In this group of countries, the greatest momentum was displayed by the United States with an above average 4.2 percent increase in goods exports. Exports from the United Kingdom rose by a slightly higher 5.5 percent, but, following two years of downward production and one year of stagnating exports, the positive trend was mainly attributable to the low base level. Exports from Asia showed a subdued development. In the first eight months of the year, Japan’s exports dropped by a slim 0.5 percent and exports from the other advanced Asian economies only increased by 1.1 percent. The euro area exported 3.4 percent more goods than one year previously. Exports from the other advanced economies also posted an above average performance, rising by 3.5 percent.

The latest figures show trade activity faltering slightly. In August 2022, global exports were only 0.4 percent higher than in the previous month. While exports from advanced economies showed a rise of 1.6 percent at last count, exports from emerging countries dropped for the second consecutive month, this time by 1.9 percent. Even if trade activity stagnates for the rest of the year, global trade should increase by more than four percent up to the end of the year.

Development of German exports

German exports continued their upward trajectory into the new year. In the first quarter 2022, exports increased by 11.1 percent compared to the first quarter 2021, although the increase was primarily due to higher sales prices. The pace of growth continued in the second quarter with exports surging 15.1 percent on the back of strong trade with the United States. In comparison, exports to Asia were

below average, growing by only 8.2 percent. Exports to the United States also dominated the third quarter, swelling by more than 33 percent. Exports to the euro area also recorded an above average increase of 19 5 percent, while exports to Asia also gathered momentum gradually (up 16 8 percent).

All in all, in the first nine months of the current year, German exports increased by 14.7 percent compared to the same period last year. Looking at the destination of exports, exports to the United States grew the most, surging up by an above average 29.5 percent. Exports to the euro area increased slightly above average, going up by 16.2 percent. Trade with the remaining member states in the EU was not quite as strong, up 14.3 percent Pulled down by the weak trade with China, exports to Asia only increased by 10.4 percent. Exports to remaining countries only increased by ten percent.

Germany: Exports according to region of destination

40

30

20

10

0

-10

-20

-30

-40

remaining countries Asia USA EU 11 Euro area

50 2018 2019 2020 2021 2022

Index: two month average, after calendar and seasonal adjustments, in percent, year on year

Sources: Macrobond, Deutsche Bundesbank

The latest figures show exports continuing to grow. In both August and September, exports grew by more than 20 percent in nominal terms year on year. Even if exports stagnated until the end of the year, the increase in German exports for 2022 overall would be 15 percent in nominal terms. In real terms, this corresponds to an increase of 2.5 percent.

Industries in Germany

Automotive industry: moderate recovery in production

Production

After the several global crises in the last few years, including the Covid pandemic, the semiconductor shortage and the Ukraine war which triggered a temporary shortage of wire harnesses, there are indications that the situation in the automotive industry will start to ease up in the second half of the year. Average capacity utilisation in the industry, for example, increased slightly from 82.4 percent in the second quarter up to 85.1 percent in the fourth quarter. Furthermore, while 89.1 percent of companies reported problems with material shortages in the second quarter, this figure had dropped to 75.1 percent at the start of the fourth quarter.

This development has had a positive impact on domestic car production. In the first ten months of the year, passenger car production rose by ten percent to 2.79 million passenger cars. In the last three months, month on month growth rates were in the high double digit range. The unusually high growth is partly due to the weak performance last year when production reached its lowest level since 1975 at 3.1 million units. We expect production this year to grow by a total of seven percent to 3.3 million passenger cars.

Domestic orders in hand for passenger cars are slowly being worked off. The reach of orders remains very high though, at over eight months. At the same time, incoming orders for passenger cars have been on a definite downward slide since July. Foreign orders are stabilising the situation here and increased in October.

The transition to electromobility is clearly reflected in the production figures. In August and September, every fourth passenger car produced in Germany was equipped with an electric motor. Electrically powered cars are already more popular than diesel (including mild hybrid). In the first three quarters of the year, 343,100 cars coming off the assembly lines were pure electric vehicles which represents an above average increase of 53 percent.

The transition towards electromobility represents a challenging restructuring process for the automotive industry, particularly for component suppliers because of the lower complexity of an electric motor. This is reflected in the declining workforce. The automotive industry employed a total of 772,900 employees (down two percent year on year) and component suppliers 274,000 employees (down six percent).

Exports

Exports followed a similar upward trend to production in the first three quarters of the year, rising by nine percent. The weak European market and Covid lockdowns in China curbed growth in the first half of the year. The proportion of exports dropped down somewhat to 76.1 percent. In the first ten months, exports increased by nine percent to 2.13 million units. The United States has become the biggest market for German passenger cars, accounting for 255,200 units (up 25 percent), overtaking the United Kingdom which received 238,200 units (up nine percent). The third biggest market was China with 199,100 units (down one percent).

Contact: Alexander Fritz / Phone: +49 30 8978 423 33 / Mail: alexander.fritz@vda.de

Construction industry: 2023 set to be difficult

The construction industry started off the year as expected in the first quarter, before feeling the full brunt of the Russian war of aggression in Ukraine Incoming orders for mainstream construction increased by 4.1 percent in real terms and construction revenue by 5.6 percent, also on account of the favourable weather conditions.

The situation has changed considerably since then. In the first eight months of the year, incoming orders (up 10.3 percent) and revenue (up 11.5 percent) both still recorded double digit rises in nominal terms. This explains why the current business situation in mainstream construction was on balance still rated as moderately positive in late autumn.

However, these figures are completely invalidated by the rising construction prices. The deflator on construction investment is likely to be 18 percent this year which is its highest level in post war German history. Factoring in the high rate of inflation, incoming orders and revenue in real terms were both five percent down in the first eight months of the year compared to the same period last year

A positive development is that mainstream construction recorded its highest backlog of orders since German Reunification in the middle of the year at 72 billion euros. In combination with the reach of orders calculated by the ifo Institute, this will keep mainstream construction busy until next spring. On the other hand, there are some negative trends. Despite the easing up of shortages in materials reported in the middle of the year, the production of every third construction company is still hampered by shortages. At the same time, the proportion of companies reporting order cancellations has tripled since the outbreak of the war.

The persistently high prices of building materials are not just having an impact on the earnings of construction companies. They are also pushing up the prices for construction services, dampening the demand of prospective investors.

The trend in interest rates is particularly problematic. The dramatic reduction in mortgage interest rates between 2009 and 2021 markedly improved the refinancing terms for construction investments. The low and negative interest rates on the capital market thus fuelled a substantial increase in the interest of investors in real estate investment. The lower interest rates also reduced public interest expenditure which benefited, at least in part, public construction expenditure. The hefty rise in interest rates since the start of 2022 is likely to put an end to these trends.

Sentiment in the industry has become correspondingly bleaker, particularly business expectations going forward. In February this year (before the outbreak of the war), the average rating for expectations in mainstream construction following seasonal adjustment was at minus 15 points. By October, this value had dropped much further, down to minus 47 points

The construction industry correspondingly revised its economic forecast for the current year in late autumn. Revenue in mainstream construction is now expected to drop by five percent in real terms this year and continue to point down next year.

The labour situation in the construction industry, in contrast, recorded a positive development. The number of employees in mainstream construction increased by two percent from January to August.

The uptake of new employees is partly due to the fact that one quarter of the current workforce are older than 50 and will be retiring in the foreseeable future.

Contact: Heinrich Weitz / Phone: +49 30 21286 144 / Mail: heinrich.weitz@bauindustrie.de

Building materials industry: business prospects at all time low

The economic prospects for the building materials industry have deteriorated steadily in the course of 2022. Large swathes of the industry, including bricks, tiles, and cement production, are energy intensive or, like the cement industry, rely on energy intensive inputs. The industry is therefore greatly affected by the massive increase in energy prices caused by the Ukraine war. A portion of these additional costs, as with numerous other inputs, have so far been passed on in the form of higher producer prices. Other factors are driving up construction prices as well. Combined with the deteriorating financing terms and conditions and the high level of general uncertainty, the impact on construction activity will be very tangible indeed. New residential construction stands to suffer particularly. Projects that have already been started are still being continued but many new construction projects have been postponed for the time being because of current circumstances

After getting off to a good start this year, with growth of 6.9 percent in real terms in the first quarter year on year, the production of building materials fell by 3.7 percent in the second quarter. In the third quarter, production continued to point down, contracting 6.5 percent (January to September: down 1.9 percent). Production is still on a relatively high level despite these decreases (capacity utilisation 10/2022: 85 6 percent), so current business is still regarded as relatively positive at plus 20 points despite turning down since summer 2021. In view of the foreseeable deterioration in demand from the building industry and other customer industries and the considerable level of uncertainty regarding the business environment going forward, expectations have plunged to an all time low of minus 60 points

All in all, the German Building Materials Association (bbs) anticipates production levels in the industry to drop around two percent in 2022. The downward momentum is set to accelerate substantially in 2023 although it is difficult to make reliable forecasts given the high level of uncertainty. Regarding the individual subsegments, those related to shell construction are likely to face strong decreases, while segments related to renovation should be more stable. The partial capping of gas and electricity prices on the horizon should help calm down the price trends in energy intensive products and, in turn, stabilise downstream fields such as the construction industry.

Contact: Christian Engelke / Phone: +49 30 7261 999 29 / Mail: c.engelke@bvbaustoffe.de

Chemical industry: business under pressure

The energy crisis is still keeping the chemical and pharmaceutical industry on tenterhooks, with the situation further deteriorating over the summer. Extremely high energy prices have forced the industry to cut down energy intensive processes and pause operations in some facilities. The decline in production is not just affecting energy intensive segments but the whole industry. From January to

September, output was a good 4.5 percent down year on year. The contraction in chemicals excluding pharmaceuticals was over eight percent. Production was below last year’s levels across all segments Capacity utilisation in the industry has fallen well below average. At the same time, companies are finding it increasingly difficult to pass the steeply risen energy prices down the value chain. In the third quarter 2022, the industry’s revenue dropped for the first time in two years. Domestic sales suffered a particularly large decline. The weakening global economy and low level of industrial activity in Germany are bringing demand for chemical products down. Incoming orders have contracted tangibly, as have orders in hand. The industry has increased revenue by 21 percent in the course of the year so far, but this is entirely due to rising prices and does not compensate for the higher costs. Corporate earnings have taken a serious turn for the worse. Companies in the industry are correspondingly pessimistic about their current business situation.

Outlook: difficult months ahead

The business prospects of chemical companies have been at rock bottom for months already. Many expect the situation to deteriorate further in the coming months. While prices for gas and electricity have recently fallen substantially on the European energy markets, the reduced prices have not yet arrived at the companies. The energy prices are also subject to change rapidly again once cold weather sets in or gas reserves fall

In the upcoming months, demand for chemical products is set to weaken further. Germany and Europe are sliding into a recession. Domestic industrial production is expected to slow down towards the end of the year. It will then be even more difficult for chemical companies to pass on the high energy and commodity costs to its customers. Domestic trade is therefore forecast to continue pointing down in the final quarter of the year.

The situation on the export markets of the chemical industry looks slightly better on the whole. Industrial production is growing moderately in some European countries, North America and Asia, despite the global economic slowdown. German chemical companies only stand to benefit from foreign demand to a limited extent, however, due to the high energy prices and the resulting competitive disadvantages. There are grounds for concern that exports will slide into negative territory towards the end of the year.

For 2022 overall, production will be down on 2021 by around 5.5 percent. Excluding pharmaceuticals, the output of chemicals is set to contract by as much as 8.5 percent. Revenue in the industry will still record double digit growth (up 16 percent), but with an increase in prices of 21.5 percent this is not a positive development. Rising costs have driven up prices, which, in turn, inflate revenue. However, the price increases do not cover the cost increases by a long chalk.

Contact: Christiane Kellermann / Phone: +49 69 2556 1585 / Mail: kellermann@vci.de

German electro and digital industry: industry remains robust in the face of economic slowdown

The German electro and digital industry has so far remained unaffected by the deteriorated macroeconomic environment. After more than recuperating the losses suffered in revenue and production in the first year of the pandemic in 2020 last year, the industry continued its upward trend in the first three quarters of the current year. Growth was partly fuelled by price increases. Nominal

indicators (revenue, exports) recorded a much higher growth momentum than real term indicators (production).

Nominal revenue of the German electro and digital industry amounted to 164.1 billion euros in the first nine months of the year, a 11.7 percent increase on the same period last year. In 2021 overall, sales in the industry reached 200.4 billion euros, topping the 200 billion euro mark for the first time ever At the same time, producer prices increased by 7.1 percent from January to September this year. Previously, from 2015 up to late 2021, prices for electro goods had increased by an average of 0.7 percent so that price trends did not really affect the economic situation of the industry much. Production in real terms in the first three quarters of the year was up by 3.5 percent, considerably outperforming the manufacturing sector as a whole in the course of the year so far. Reasons for the good performance include the fact that the electro industry is less energy intensive (energy costs make up less than one percent of revenue), and the long term trend towards digitalisation and electrification.

A high level of incoming orders last year (up 23 5 percent) and in the first three quarters (up 11.7 percent) combined with tense supply chains at last count, 78 percent of electro companies reported ongoing materials shortages , have led to record high order backlogs with a reach of 5.2 production months. This figure used to fluctuate between three and four months. At the same time, capacity utilisation is also high at 88.2 percent

The positive trend in the size of the workforce of the industry has continued. The German electro and digital industry currently employs 894,000 employees, which is 2.5 percent more than one year ago.

Currently, the only indication of a possible slowdown ahead is the ifo business climate barometer. While optimism about current business has decreased in the course of the year it is still positive, expectations have slid more, particularly since the beginning of the Ukraine war

The German Electro and Digital Industry Association (ZVEI) has so far not revised its growth forecast of four percent for 2022.

Electro exports: heading for another new record

The exports of the German electro and digital industry hit a new high last year at 226.3 billion euros. The industry is likely to set a new record this year, judging by the first nine months in which exports grew by 8.2 percent to reach 180.3 billion euros

In the ranking of the ten largest export markets, China is still number one. From January to September 2022, electro exports from Germany to the country totalled a value of 19.8 billion euros (up 5 8 percent year on year). Electro exports to the United States (ranked second) totalled a value of 17.5 billion euros in the same period, which represents a steep increase of 22.9 percent year on year. With a combined export volume of 58.8 billion euros (up 7.6 percent) in the first three quarters of the year, the euro area accounts for one third of German electro exports.

Export prospects have dampened substantially following the outbreak of the Ukraine war but are still in positive territory (up six percentage points).

Contact: Matthias Düllmann / Phone: +49 69 6302 329 / Mail: matthias.duellmann@zvei.org

Digital sector

Business in the digital sector was slightly slicker in October than it was in September, but uncertainty about the prospects for the coming months has increased. IT and telecommunication companies rated their current business situation at 34.9 points in October which is four points higher than in September. The business prospects for the coming months have nonetheless dropped by a good three points to minus 18.4 points. This comes after a decrease of ten points already in September, bringing the Bitkom ifo digital index down to minus 15.5 points. This index visualises business sentiment in the digital sector and is composed of assessments of the current business situation and expectations for the next three months. It is currently at 6.5 points, after nudging up slightly on the previous month (6.4 points). According to the ifo Institute, business sentiment for industry overall is at minus 15.6 points. While this shows that the digital sector is proving to be much more resilient to crises than German industry overall, macroeconomic trends are still leaving their mark. Many digital companies are concerned that business will turn down in the coming months under the strain of persistent inflation, the energy crisis and declining demand.

The largest obstacle to business in the industry is still the shortage of skilled staff. While the index went down by 2.4 points in October compared to the previous quarter, at 50.6 points, it remains very high. Insufficient demand is less frequently regarded as a problem with the index dropping 0.3 points down to 24.6 points. Financing difficulties are almost irrelevant, remaining steady at the low level of three points (down one point).

Information and communications technology companies are still planning on increasing their workforce. Employment expectations were at 20.7 points (minus 3.1 points), so the vast majority of companies plan to increase their staff in the next three months. The demand for skilled digital workers is high and has continued to climb. A large majority of companies expect the prices of their products and services to rise. Already on a high level, the index increased another 3.8 points to 51.2 points.

The digital sector is facing higher purchase prices for energy, raw materials, inputs and components which have barely been passed on to its customers as yet. IT and telecommunication companies reported that they have only passed on around 17 percent of the higher costs to their customers on average so far. Digital companies are showing much more restraint in this respect than industry overall which has passed on an average of 34 percent of the cost increases. Companies in the digital sector plan to continue passing on only a moderate proportion of their rising costs. In the next six months, the digital sector plans to add around 35 percent of its cost increases on to consumer prices compared to 50 percent for the industrial sector as a whole.

The reasons behind the reluctance of the digital sector to pass on the rising costs are primarily competitive pressure (66 percent) and long term contracts (56 percent) as well as weaker demand and lower willingness to pay generally (32 percent). Nine percent of companies reported that the administrative burden of adjusting their prices had been too high so far. Three percent of companies cannot set their prices themselves on account of, e.g., regulatory interventions.

Contact: Dr.Florian Bayer / Phone: +49 30 2757 6162 / Mail: f.bayer@bitkom.org

Foundry industry: uncertain winter ahead with good level of orders

The mood among German foundries in autumn 2022 is mixed. The ifo Institute balance of good and bad ratings as of October was at plus 25.8 points This is a good level but only half as high as two months previously. Expectations for the next six months are well into negative territory. The gap between the assessment of the current business situation and expectations has only ever been higher once since this data series began. The ifo business sentiment indicator for foundries is at minus 9.7 points.

The order backlog of German foundries is on a very high level. The reach of orders of foundries working for machinery manufacturing has reached a new record high The pace of growth in incoming orders has lost a little steam in the second half of 2022 so far but is still high. Capacity utilisation was at 88 percent in October, well above its long term average of 80 percent. Foundries are nonetheless having trouble working off their orders, with material shortages on account of the war in Ukraine curbing production partly in the first half of the year, and the shortage of staff exacerbating the situation in the past few months. While foundries will start into 2023 with a large cushion of orders under their belts, the weak state of the economy harbours great uncertainty for the industry. There are question marks hanging over the further development of vehicle production in particular, a major customer of the foundry industry

The wage rounds are coming at a time in which energy costs are weighing down heavily on foundries. The number of foundries that are having to operate with sharply multiplied gas and electricity prices is rising steadily as old price agreements expire. Those foundries that have not been offered follow on agreements by their energy suppliers are facing the biggest challenges. This uncertainty is making production planning much more difficult. Companies are becoming acutely aware of the fact that despite the cuts already made, gas and electricity supply may still become an extensive problem around the turn of the year The uncertainty regarding when and what support will be implemented by policymakers has continued to grow. The possibility of a broad wave of insolvencies is still very real

In the first three quarters of the year, the production of cast components dropped 1.8 percent year on year. Production in iron and steel foundries was 1.3 percent down on last year, and, in nonferrous metal foundries, down 3.6 percent. Fuelled by the high raw material and energy prices, sales in the first eight months of 2022 were 18.9 percent higher than in the same period last year. The 600 odd companies operating in the industry currently employ around 70,000 workers, according to the German Foundry Association (BDG).

Contact: Tillman van de Sand / Phone: +49 211 6871 301 / Mail: tillman.vandesand@bdguss.de

Ceramics industry

After starting to recover in 2021, the fine ceramics industry was able to stabilise further in the first six months of 2022 and continue its upward path following the slump during the pandemic. Incoming orders are expected to remain steady in the further course of the year.

The project business of decorative ceramics and dinnerware started off 2022 with a strong performance in the wake of the pandemic, with increased private consumption also making for a positive trend in incoming orders. The upward trajectory continued into the next quarter bringing sales for the first six months 29 percent higher year on year.

Technical ceramics also managed to increase total revenue by around 13 percent in the first six months of 2022 year on year, regaining its pre pandemic level. The situation among automotive component suppliers could have a negative impact on sales in some segments down the line.

Sanitary ceramics enjoyed a steady intake of orders, as it had already in 2021 and during much of the pandemic.

The tile industry continued its upward trajectory of 2021, with total revenue growing further and orders also pointing up and expected to remain positive for the rest of the year.

All in all, the ceramics industry recorded rising sales and incoming orders in the first six months of 2022, continuing its recovery from the first year of the pandemic.

The current volatility caused by Putin’s attack on Ukraine, sanctions and the current logistics problems in Chinese ports and elsewhere may well put an end to the current upwind in the industry. The upward trend among private consumers could well flatten out in the autumn months with possible new developments in the pandemic and rising inflation, which could also deflate project business for dinnerware in particular. Postponed and cancelled construction projects have a direct impact on sanitary ceramics. The industry is thus expected to grow at a slower pace over the next few months.

Furthermore, the energy intensive ceramics industry is greatly affected by the energy crisis and the associated rise in gas prices which translates into a competitive disadvantage.

In addition, the carbon pricing scheme introduced in Germany for small plants is distorting competition, particularly in the fine ceramics industry as these are classified as operators of small plants not covered by the EU ETS. Policymakers have thus created substantial competitive disadvantages for German ceramic companies.

Contact: Jenny Tanner / Phone: +49 9287 808 25 / Mail: tanner@keramverband.de

Aviation

The situation of the commercial German aviation sector is mixed in the second half of 2022. While companies that publish their figures are reporting improved earnings, travel in and through Germany is lagging behind the overall trend in Europe. After a strong boom in 2021, air freight joined the general economic trend and was down on the previous year.

Trend in air travel: In summer 2022, air travel stabilised considerably in Europe. The number of seats available to, from and within Europe (EU / EEA / UK) was 85 percent as high as in the pre crisis summer of 2019. Excluding travel to, from and within Germany, the recovery was at 87 percent; in travel to, from and within Germany, seats available were at 75 percent their pre crisis level Recovery is set to

continue over the winter 2022/2023. The scheduled seats available in the European countries referenced above corresponds to 94 percent of the level in the pre crisis winter (2018/2019) and in Germany, the volume is back to 76 percent of its pre crisis level.

The trend in passenger numbers is following the same path as available seats. In September, overall passenger demand to, from and within Germany was at 64 percent that of 2019.

There are several reasons behind this development:

▪

European point to point carriers have recovered well in Europe but have, at the same time, shifted extensive capacities from Germany to other European countries. The airports of Berlin, Düsseldorf, Stuttgart and Frankfurt are particularly affected by this trend. Carriers that are moving their flights away from German cities are doing to because the ratio between demand, willingness to pay and costs for charges and fees in Germany no longer adds up.

▪

Local air travel within Germany (flights that both start and end in Germany) contracted: the volume of air travel is at around 25 percent of its pre crisis level. The use of alternative ground transport (car and rail) and digital methods of communication have risen instead. The frequency density of domestic flights within Germany has fallen steeply, also because of the withdrawal of carriers

▪

Air travel is strongly influenced by the many congresses and trade fairs held in Germany, many of which did not take place on account of Covid

Travel to and from Asia had still not recovered by the summer. Tourist travel, in contrast, trended positively and almost regained its pre crisis level. The portion of domestic air travel that mainly transports transfer passengers to the major German hubs has largely followed the upward trajectory of intercontinental air travel. The hubs in Frankfurt and Munich were able to benefit from their status as collection points for intercontinental flights, with Frankfurt outpacing the overall average for Germany in particular.

▪

The booming demand in air freight has tailed off. Following a very strong performance in 2021, demand was well below the previous year (accumulated: down four to five percent / 6.4 percent below the very weak pre crisis year 2019) and further decline is on the horizon with supply chain problems, risk of war, energy shortage, inflation and a looming recession all curbing demand.

The earnings of the listed corporations Lufthansa and Fraport have recovered. Lufthansa published group earnings of 0.5 billion euros (up 2.4 billion euros year on year) and, above all, a strong summer with rising revenues per passenger. Fraport also reported EBIT of 0.5 billion euros (up 186 million euros) for the first three quarters of 2022. Both groups have managed to leave the losses caused by the pandemic behind them

Contact: Norbert Lübben / Phone: +49 30 5200 771 30 / Mail: Norbert.Luebben@bdl.aero

Machinery manufacturing doing well in challenging times

Production in the machinery and plant manufacturing sector in Germany between January and September this year was only 0.3 percent lower than in the same period last year. Orders grew at a handsome rate, but supply shortages have not yet eased up properly. Materials and components are still in very short supply, not least on account of China’s zero Covid strategy Electronic components are particularly scarce. Many companies are also struggling with shortages in transport capacities and in skilled staff. According to a recent flash poll by the German Mechanical Engineering Industry Association (VDMA), almost four fifths (78 percent) of all machinery manufacturers reported a shortage of skilled staff in September. Only three percent of companies surveyed expected to see this situation improve within the next three months (final day of survey: 23 September 2022). The reach of orders in hand thus remained at 12.1 months in August. Shortages are also affecting capacity utilisation, which was at 89 percent in October. Although this is a high rate for the industry, most companies are not curbing production because of shortages so there is still some leeway here.

Production in machinery manufacturing in real terms is likely to drop slightly next year. The adverse factors are weighing too heavily on the industry for it to generate further growth. This slowdown has already been indicated in the trend in incoming orders for some time. While the level of orders remained steady in the final quarter of 2021, it has decreased slowly since the beginning of 2022. Many factors are behind this development. Growth in the second largest trade partner of the machinery manufacturing industry, China, has declined substantially for manifold reasons. The war in Ukraine has also upset energy security and prices in many European countries. In many, though not all, key customer countries of German machinery manufacturing the high inflation rates and steeply rising interest rates are curbing the consumption propensity of private households and investment propensity of companies. Although improved, problems brought about by Covid are still on the table even outside of China All these factors are causing a great deal of uncertainty among many customers, and this is a well known poison for the demand of capital goods. Production in real terms is therefore likely to be slightly lower in 2023 year on year although the high reach of orders in hand will stabilise the situation to some extent

There is also something positive to report in these challenging times. Numerous trends, such as decarbonsiation, digitalisation and automation, and some of the national and supranational stimulus packages will prevent production from dropping too much in the short term and ensure that the industry gets back to growth in the medium term.

Contact: Olaf Wortmann / Phone: +49 69 6603 1373 / E Mail: olaf.wortmann@vdma.org

Nonferrous metal industry

The German nonferrous metal industry is concerned about the winter months. The main worry of companies continues to be the exorbitant prices for electricity and gas which have already curbed production levels. Shortages in materials and staff are also still posing big problems. In the first six months of 2022, the industry produced 3.5 million tonnes (down five percent compared to the brisk first six months of 2021) and a revenue of 40 billion euros with a combined workforce of 105,000 employees

and 620 companies. Domestic sales accounted for 54 percent of the revenue and represents the industry’s biggest market. The nonferrous metal industry is divided into the following stages of the value chain: production (raw metal), semi finished products (ribbon, sheets, rods, profiles, pipes and wire), further processing (foil, thin ribbon, tubes, aerosol cans, other cans and powder), casting and hot dip galvanising. From January to June 2022, the aluminium industry produced 448,000 tonnes of raw aluminium, 21 percent less than in the same period last year. The production of semi finished aluminium products amounted to 1.3 million tonnes in the same period, remaining steady year on year. Production in the aluminium further processing segment expanded by seven percent compared to the first six months of 2021, going up to 178,000 tonnes. The copper industry saw production drop to 716,000 tonnes, a decrease of three percent compared to its dynamic performance in the first half of 2021 The biggest segment here, the production of semi finished rolled extruded and drawn products, recorded a six percent decrease in production in the first six months of 2022 compared to the high volume of production last year, going down to 422,000 tonnes. The manufacturers of lead, zinc, nickel, tin and other nonferrous metals produced 322,000 tonnes in the first six months of 2022, eleven percent less than in the first six months of 2021. The nonferrous metal foundry industry produced 414,000 tonnes of cast parts in the same period, six percent less year on year. Overall, the nonferrous metal industry anticipates production to continue its downward trend towards the end of the year.

A new era: Germany net importer of semi-finished products for the first time

In the first six months of 2022, the nonferrous metal industry recorded foreign sales of 18 billion euros. This corresponds to a decrease in the export quota to 46 percent. Germany has been a net importer not only of ores and concentrates but also of crude metal for many years. This means that the country imports considerably more crude metal than it exports, reflecting the dependence of German industry on imports from abroad of some raw metals such as aluminium, nickel, zinc, tin and several rare metals In the first six months of 2022, imports of raw metal increased by nine percent year on year, going up to 2.1 million tonnes. Exports of raw metal, on the other hand, dropped ten percent to 491,000 tonnes. Germany has been a net exporter of semi finished products for several years. In the first six months of 2022, imports of semi finished products exceeded exports for the first time. Exports contracted by a hefty eight percent, down to 1.2 million tonnes, while imports grew by a sizeable nine percent to 1.3 million tonnes.

Contact: Oliver Eisenberg / Phone: +49 30 726207 167 / E Mail: oliver.eisenberg@kupfer.de

Pharmaceutical industry

The pharmaceutical industry is moving in line with the overall economic slowdown and has lost momentum. After a dynamic start to the year, the production of pharmaceuticals is not likely to decrease in the year overall, but growth will be lower than last year.

The main reason for the high output at the turn of the year 2021/22 was the massive growth in the production of vaccines, but this has been scaled down substantially since the early summer. As the production levels return to normal output next year will also be lower. The potential increase in the demand for vaccines over the winter may trigger an interim high for pharmaceutical products as indicated by the recent pronounced pick up in production and domestic orders. This will not necessarily

lead to sustained higher production levels as it did last winter and therefore represents an upward risk for forecasts

While sales on foreign markets are likely to return to their pre crisis levels next year and continue to increase, domestic sales are set to tread water around about the level recorded in the years before the pandemic. All in all, production in 2023 is expected to be around three percent lower than this year.

Apart from the peaks in demand caused by Covid vaccines, the prospects have become bleaker according to the most recent figures. The hefty price increases are having an above average negative impact on pharmaceuticals even though the industry is less affected by direct energy costs than the chemical industry, for example. However, as the chemical industry passes on a substantial part of its increased energy costs, as most other industries do, pharmaceutical companies that buy their inputs are among the industries most affected by the rising prices. This is all the more true as, unlike most other industries, these cost increases cannot be compensated by higher sales prices. Germany’s recently adopted Financial Stabilization of Statutory Health Insurance System Act will exacerbate the situation and the already huge cost pressure. The consequences of the amendments contained in the act regarding reimbursement arrangements will be even more serious The new regulations will initiate a downward spiral in innovative drugs and curb innovations and investment markedly.

Contact: Dr Claus Michelsen / Phone: +49 30 2060 4120 / E Mail: c.michelsen@vfa.de

Steel and metal processing: third quarter production one percent higher year on year

After increasing production by two percent year on year in both August and September, production in the third quarter of 2022 was also one percent higher than in the same period last year. These figures do not reflect actual developments as production last year was curbed by disruptions to supply chains. A comparison to the second quarter 2022 is therefore more useful and shows a drop in production among steel and metal processing companies in Germany of 0.5 percent. The industry nonetheless managed to reduce the gap to production levels last year to 0.7 percent in the first nine months year on year. The outlook for the last three months of the year is challenging. Incoming orders do not indicate a positive finish to the year and were seven percent down in the third quarter year on year and five percent down on the second quarter 2022.

Business sentiment is not indicating a positive trend in the final quarter of the year either. Although the federal government’s announcement of a 200 billion relief package seems to have curbed the downward trend in expectations for the time being, the downward momentum in the rating of current business has accelerated. The lower capacity utilisation of production facilities matches the assessment of the business owners

The federal government must now rapidly and resolutely implement the proposals of the Expert Commission Gas and Heat presented in its final report of 31 October and support them with further measures to avoid disrupting the structure of value chains, the very foundation of our prosperity. The key points published on 2 November by the ministries involved and based on the commission’s proposal fall short of the mark in some places.

Contact: Holger Ade / Phone: +49 233 1958 821 / Mail: hade@wsm net.de

Textile and clothing industry

The dominant current trend in the German textile and clothing industry is stagnation. After getting off to a promising start to the year after the difficult Covid years of 2020 and 2021, revenue was finally approaching its pre crisis level of 2019. Since then, however, the upswing has faltered. In 2022 overall, the industry is unlikely to reach its pre crisis level.

Sales for the industry as per August were much higher than in the previous year, up 10.1 percent (textiles up 8.1 percent, clothing up 20.3 percent), but with a low base line these growth rates are not enough to regain pre crisis levels. Trends in the workforce show the same picture. The number of employees is pointing up but is still ten percent below pre crisis levels. Sales figures since the summer 2022, and particularly after seasonal adjustment, trace a clear downward trend

Overall, exports are performing better this year than domestic sales.

The industry’s short term expectations have also become much more pessimistic. This is particularly true of the textiles sector where the ifo index has dropped steadily and is now as low as it last was at the beginning of the Covid crisis. In contrast, the ratings of clothing companies were decidedly optimistic up to the summer, particularly regarding short term expectations. This optimism had evaporated almost entirely by the autumn. Foreign trade expectations have deteriorated especially, above all in the clothing sector.

The soaring energy prices and partly exorbitant increases in the prices of inputs are still placing a great strain on companies as they generally only have very limited scope to pass on the increased prices on account of the structure of their customer industries. The massive difficulties with supplies in the past few months have also kept the performance of the industry down.

Overall, we do not expect to see a complete recovery in 2022 but rather that downward trends will dominate the picture.

Contact: Marcus Jacoangeli / Phone: +49 30 7262 2024 / Mail: mjacoangeli@textil mode.de

Imprint

Bundesverband der Deutschen Industrie e.V. (BDI)

Breite Straße 29 10178 Berlin

T: +49 30 2028 0 www.bdi.eu

German Lobbyregister Number R000534

Author

Thomas Hüne

T: +49 30 2028 1592 t.huene@bdi.eu

Editorial / Graphics

Dr. Klaus Günter Deutsch

T: +49 30 2028 1591 k.deutsch@bdi.eu

Marta Gancarek

T: +49 30 2028 1588 m.gancarek@bdi.eu

This report is a translation based on „Industriebericht | Industrial production and trade in the individual industries“, as of 21 November 2022.