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

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