Industry Report 05/2023

INDUSTRIAL POLICY DOSSIER

Industry Report

Industrial production and trade in the individual industries

▪ We expect manufacturing output in Germany to increase by one percent this year. The order backlog will keep production facilities busy until well into the second half of the year. Supply bottlenecks are also gradually easing up.

▪ Mixed trends in manufacturing within the European Union: While pharmaceuticals and electronics are doing well, energy-intensive industries are cutting capacities.

▪ In 2023, we expect German exports to grow two percent overall in real terms. Exports to the United States are set to continue their upward trend. Trade with Asia is also expected to pick up with the Chinese economy continuing to recover.

We anticipate global trade to increase by 2.5 percent in 2023 (after 5.5 percent in 2022). Goods exports from advanced economies are expected to grow much slower than those from emerging economies

Global industrial production

Global industrial production increased by three percent in 2022, according to figures published by the Netherlands Bureau for Economic Policy Analysis (CPB). This represents a higher rise in production than on average over the last ten years (2.8 percent). Following a solid increase in production in the first quarter of 2022, activity dropped somewhat in the second quarter in response to the outbreak of the war in Ukraine. Global industrial production slowed down again in the final quarter of the year.

In 2022, industrial production in emerging countries increased by 3.8 percent compared to the previous year, which is slightly less than the average rise over the last ten years (4.2 percent). Following a strong start to the year, supply bottlenecks and disruptions in logistics restrained industrial production in emerging countries considerably over the summer months. Output in the second quarter 2022 was down by 2.9 percent. In the third quarter, industrial activity picked up somewhat before faltering again in the final quarter of the year.

Industrial production in advanced economies also got off to a swinging start in 2022, before trending sideways over the second and third quarter, then pointing down in the fourth quarter. Overall, industrial production grew by 2.2 percent year on year, which is slightly more than on average over the last ten years (1.6 percent).

*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

At the start of the first quarter 2023, global industrial production dropped by 1.4 percent quarter on quarter. The poor performance was largely the result of falling production among advanced economies. Industrial production in emerging countries rose in the first quarter of the year. The global purchasing managers’ index for manufacturing has gained some ground since the turn of the year but was still under the threshold to expansion in March. The outlook for the further course of the year is modest on

World: Industrial production*, Purchasing Managers Index

account of the uncertain global political situation. For the year overall, we expect global industrial production to rise by a meagre 0.5 percent year on year.

Advanced economiese

In the advanced economies, industrial production exceeded its pre-pandemic level for the first time in 2022. The primary factor fuelling production was increased output among the other advanced economies. Industrial production here grew by four percent compared to the previous year. This brought industrial production among this group of countries to more than eight percent above prepandemic levels. Industries in the advanced Asian countries excluding Japan only expanded their production by 1.5 percent in the same period, but this still brought production levels in the third year after the outbreak of Covid to 14.3 percent higher than before the pandemic. While industrial output in the United Kingdom and Japan is still 8.2 percent and 5.2 percent respectively below its pre-pandemic level, the output of US industry grew by 3.8 percent year on year, bringing it 1.3 percent above its prepandemic level.

At the start of the first quarter 2023, industrial production in the advanced economies dropped by 1.6 percent compared to the previous quarter. Asian industrialised countries and the United Kingdom recorded the biggest drops in production. Industrial production within the euro area expanded slightly. The purchasing managers’ index for manufacturing in the advanced economies has pointed up since the beginning of the year. At 48.4 index points at last count, it has nonetheless now been below the threshold to expansion for the last six months. While global supply chain problems have eased up somewhat, we expect industrial production in the advanced economies to contract by 0.5 percent on account of the negative carryover effect from last year.

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

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

Advanced economies: Industrial production*, Purchasing Managers Index

Emerging economies

In the emerging countries, industrial production started off 2022 with robust growth of six percent in the first quarter. This brought industrial production above its pre-pandemic level in all groups of countries for the first time in two years. The pace of growth lost steam towards the end of the year, but, at 3.8 percent, was still slightly higher than the average over the last ten years. The strongest growth in industrial value added was in the region of Africa and the Middle East, on the back of high fossil fuel prices. At 7.5 percent, the region recorded its highest annual growth in more than 20 years. In the other Asian emerging countries, industrial activity once more outpaced China, rising by 4.4 percent. Industrial production in Latin America expanded 2.7 percent for the second consecutive year. The lowest growth in 2022 in this group of countries was recorded by industry in Central and Eastern Europe, with a drop in production of 1.2 percent.

At the start of the first quarter 2023, industrial production in the emerging countries increased by 0.5 percent compared to the previous quarter. The Asian emerging countries accounted for almost all of the growth. In Central and Eastern Europe, production stagnated. The countries of Africa and the Middle East posted downward production for the second quarter in a row.

In February 2023, the purchasing managers’ index for manufacturing in emerging countries rose for the third consecutive time, up to 51.6 points, indicating expansion for the first time since August 2022 It remained in expansionary territory in March at 50.7 points. Despite the small negative carryover effect from last year, we still expect industrial production among emerging countries to rise by around one percent.

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)

The United States: no prospects for growth in 2023

US industry (industrial production excluding construction) started out 2022 growing more than four percent in each of the first two quarters. Growth was still strong in the third quarter, with production up 3.9 percent year on year. Industrial activity then floundered in the final quarter of the year. In the year overall, production increased by 3.7 percent. This represents an increase of more than 1.2 percent on annual production in 2019. Manufacturing output increased by a slightly lower 3.3 percent but was 1.9 percent higher than before the pandemic.

Among the individual industries in the manufacturing sector, vehicle production, like last year, recorded the strongest annual growth, climbing up by 7.2 percent this year. Machinery manufacturing also recorded above-average growth of 5.2 percent. The electro industry cranked up its output by 3.5 percent, producers of computers and data processing equipment by 1.7 percent. The food industry increased production for the fourth consecutive year (up one percent). Basic chemicals recorded a rise in production of 1.8 percent. The production of pharmaceutical products increased by 4.1 percent.

At the start of the first quarter 2023, manufacturing output was down by one percent on the previous quarter. According to US figures, vehicle production and computer manufacturers curbed their production. Chemical, electro and pharmaceutical industry managed to increase their production slightly. The purchasing managers’ index for manufacturing has risen constantly since December 2022. It reached its highest level in five months in March, but, at 49.3 percent, was still below the threshold of 50 points indicating expansion. Due to the negative carryover effect of 0.7 percentage points and the slowdown of the US economy, we expect industrial production in the United States to stagnate at best in 2023.

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

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

United States: Industrial production*, Purchasing Managers Index

China

China’s industry (manufacturing including construction) managed to sustain its upward path from the end of 2021 in 2022. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production rose by 5.9 percent in the first quarter of 2022 compared to the previous quarter. Growth then turned down abruptly in the second quarter, with production dropping by 6.4 percent compared to the previous quarter. In the next two months, industrial activity turned up both quarter on quarter and year on year. In 2022 overall, industrial production increased by 3.6 percent.

In the course of 2022, value added increased in most industries, according to Chinese figures. Over the year as a whole, the annual growth rate of car production averaged 6.4 percent. The chemical industry increased its output by an average of 5.6 percent, the producers of computers and electrical devices by as much as 7.7 percent. Machinery manufacturing grew by more than ten percent and special machinery by a slightly lower 3.5 percent. The production of ships, trains and airplanes also rose slightly (up 1.5 percent). Negative growth rates were recorded by pharmaceuticals and in the production of textiles and clothing, while the production of paper and metal products stagnated.

The purchasing managers’ index for manufacturing in China fluctuated in a range of two index points below the threshold value of 50 from August 2022 to January 2023. In February, it rose by 2.4 index points, before losing ground again in March. At 50 points at last count, it currently stands above the threshold indicating recession. If production levels remain at their year-start levels, production could expand by up to five percent in the year overall.

Japan: weak electro industry, vehicle production treading water

Weighed down by negative base effects, Japan’s industry (industrial production excluding construction) failed to find its feet in the first two quarters of the year Production was also below fourth quarter 2019 levels. Industrial activity then picked up in the middle of the year. In the third quarter 2022, production levels were substantially higher both compared to the previous year and compared to the previous

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

China: Industrial production*, Purchasing Managers Index

quarter. Production then remained steady in the final quarter of the year. For 2022 overall, production was nonetheless down by a marginal 0.1 percent. Manufacturing output fared slightly better, nudging up a minute 0.1 percent year on year.

Among the individual industries, machinery manufacturing recorded the strongest growth, expanding by 6.3 percent year on year. Japan’s machinery manufacturers represent the only industrial group that has so far managed to produce more than before the outbreak of the pandemic. The chemical industry including the production of pharmaceutical products expanded production somewhat, recording a rise of 1.5 percent year on year. Chemicals alone contracted by three percent in 2022 overall. The electro industry recorded the strongest drop in production, with a fall of 9.2 percent. Vehicle production only contracted by a marginal 0.9 percent but, at the end of 2022, was still twelve percent lower than before the outbreak of the pandemic. Metal producers and processers also reduced their output slightly (down 0.8 percent). Production also pointed down in the cement industry (down 2.7 percent) and in food, beverages and tobacco (down 1.1 percent).

In the first two months of the current year, manufacturing output was three percent down on the fourth quarter 2022. Production was pulled down particularly by low activity in machinery manufacturing and vehicle production. The electro industry and food contributed slight upward momentum. In March, the purchasing managers’ index for manufacturing gained ground for the first time in four months. At 48 6 index points, it was still below the threshold level of 50 points above which the index indicates expansion. Although Japan’s industry started out the year with a positive carryover effect of 1.9 percentage points, production will have to rise substantially over the next few months for a positive annual result.

Japan: Industrial production*, Purchasing Managers Index

South Korea: industrial activity loses momentum towards year end

South Korea’s industrial production (excluding construction) grew by more than six percent year on year in the first six months of 2022. Activity then faltered in the middle of the year before sliding 8.1 percent in the fourth quarter year on year. On account of the strong performance in the first six months of the year, production in 2022 overall still rose by 1.3 percent. Manufacturing output recorded a similar development.

Among the individual industries in the manufacturing sector, vehicle production (up 8.8 percent) and the producers of pharmaceutical products (up 13.8 percent) recorded the strongest growth in production. Other industries increased their production much less, including machinery manufacturing (up 3 2 percent) and the electro industry (up 2 8 percent). Production was also upward in the food industry (up 2.5 percent). In the chemical industry, production fell ten percent following a rise of 8.5 percent the previous year. In metal production, output was down by seven percent. Metal processors reduced their production by 3.2 percent.

At the start of 2023, the downward trend which started in the fourth quarter 2022 continued. In the first two months of the current quarter, production was down on the previous quarter by 1.5 percent. While production increased in vehicle production and in the pharmaceutical industry, production in machinery manufacturing and in the electro industry was down on the previous quarter. The purchasing managers’ index for manufacturing has signalised downward production since June 2022. In February 2023, the index tread water at 48.5 points before losing ground slightly in March In view of the course of the year so far and a negative carryover effect of 2.4 percentage points, we expect production to fall by three percent this year overall.

Following an interim high during the summer months of 2021, the industrial sector of the United Kingdom again pointed down. Industrial production (excluding construction) has contracted continuously since the fourth quarter 2021. The downward pace accelerated in the second half of 2022,

United Kingdom

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

Source: Macrobond

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

South Korea: Industrial production*, Purchasing Managers Index

with production falling 5.3 percent in the third quarter and 4.2 percent in the fourth. In 2022 overall, production was down by 3.6 percent. In manufacturing, the drop in production was an even steeper 4.8 percent.

Among the individual industries, the electro industry (down 12.4 percent) and vehicles (down 12.0 percent) recorded the strongest drops in production. Metal processors also curbed output considerably (down 10.3 percent). Drops in production were less pronounced in the chemical industry (5.5 percent) and in pharmaceuticals (down 3.2 percent). Positive growth remained the absolute exception. Metal production increased by 1.5 percent. The food industry increased its output by 0.4 percent year on year, while producers of furniture increased output by 3.6 percent

The first quarter 2023 has yet to show a turnaround. Looking at the individual industries, production in the chemical industry, in the electro industry and in other transport equipment all recorded slight growth. Vehicle production and machinery manufacturing, the pharmaceutical industry and metal processors all reduced their output further. The purchasing managers’ index for manufacturing has gained some ground since its latest low in December 2022. At 48.0 index points in March 2023, it had been below the threshold indicating expansion for eight months. If production levels retain their yearstart levels throughout the year, this would correspond to a drop in manufacturing output in 2023 overall of around three percent.

European Union

In the European Union, industrial production (excluding construction) at the start of 2022 was just over five percent higher than before the outbreak of the pandemic in 2019. In the first half of 2022, industrial activity continued to recover with an increase in production of 2.9 percent compared to the previous quarter in the first quarter and an increase of 0.5 percent in the second and third quarter. Activity then floundered in the fourth quarter, dropping 0.4 percent. Overall, industrial production in the EU increased by 3.5 percent in 2022 compared to the previous year on account of the strong performance in the first

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

United Kingdom: Industrial production*, Purchasing Managers Index

six months of the year. Manufacturing output recorded a similarly solid performance, growing by 3.6 percent.

Among the individual industries, pharmaceuticals increased production the most, surging up 19.5 percent in 2022 overall. Double-digit growth was also recorded by the electro industry (up 10.9 percent). Growth was also above-average in machinery manufacturing (up 5.1 percent) and in vehicle production (up five percent). While production among European machinery manufacturers was well above its pre-pandemic level, the output in vehicle production was still four percent below its pre-pandemic level. In the textile industry, production increased 4.6 percent but was still more than eight percent below its pre-pandemic level. The steep increases in energy prices in the course of 2022 has constrained production in energy-intensive industries. The food industry increased its production by 1.9 percent, while activity in the metal processing industry dropped by 0.4 percent in 2022 overall. The production of rubber and plastic products was down by 1.7 percent, the production of paper and cardboard down by 1.3 percent. The strongest falls were recorded by the chemical industry, which curbed its output by 6.2 percent year on year, and, in the fourth quarter 2022, produced almost ten percent less than before the outbreak of the pandemic

In the first quarter of 2023, industrial activity lost a little momentum but still managed to beat the previous quarter by 0.3 percent. Production picked up slightly in the electro industry and machinery manufacturing as well as in steel and metal processing. Output in vehicle production dropped somewhat. Production was down sharply in pharmaceuticals on account of the steep rise experienced at the end of last year. The energy-intensive industries, including chemicals, paper and cardboard, and rubber and plastic products, continued their downward trend.

The purchasing managers’ index for EU industry has been below the threshold indicating expansion since July last year. In February, it dropped for the first time since its last low in October 2022, down to 48.3 index points. Europe’s industry started off the year with a positive carryover effect of one percentage point. The prospects for the further course of the year are far from rosy. The still relatively

Source: Macrobond

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

European Union EU27: Industrial production*, Purchasing Managers Index

high energy prices continue to drive costs upwards and deteriorate the competitive position of European industry. We therefore expect industrial production in the European Union to drop slightly.

Germany

German industry (industrial production excluding construction) started off the year 2022 with a robust increase in production of 2.4 percent compared to the previous quarter. It was not until the third quarter, however, that production levels were positive year on year. In the fourth quarter, production levels trended sideways, bringing the overall annual result for industrial production in 2022 to a marginal rise of 0.2 percent. Manufacturing output dropped by a slim 0.4 percent in the year overall.

Among the individual industries, the strongest year on year growth in output was recorded by vehicle production (up 6.9 percent), other transport equipment (up 6.7 percent), pharmaceuticals (up 5.3 percent) and the electro industry (up 4.4 percent) Low rises in production were recorded by machinery manufacturers (up 1.1 percent) and the food industry (up 0.1 percent). Most energyintensive industries saw production fall. The chemical industry cut its production by 10.1 percent, the paper industry by 5.5 percent. The production of rubber and plastic products contracted by 3.9 percent. Steel and metal processing companies produced two percent less than one year ago. In the fourth quarter 2022, production in the manufacturing sector was three percent lower than before the outbreak of the Covid pandemic in 2020. Until now, production is only back to pre-pandemic levels in the electro industry, pharmaceuticals, and vehicle production.

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

At the start of 2023, industry continued its economic recovery. In the first two months of the current year, production in manufacturing increased by 2.3 percent compared to the previous two months. The purchasing managers’ index for manufacturing has been indicating downward production since July 2022. The index dropped down to 44.7 points in March, its lowest level since May 2020. Based on the estimates of the individual industries, we expect production to increase by one percent in 2023 overall despite the weak sentiment indicators

Source: Macrobond

Germany: Industrial production*, Purchasing Managers Index

France

France’s industry (industrial production excluding construction) started out 2022 with production 0.4 percent higher in the first quarter than in the final quarter of 2021. Following a marginal setback in the second quarter, industrial production was up again in the third quarter, this time both quarter on quarter and year on year. In the fourth quarter, industrial activity turned down again bringing the annual result for industrial production to a negative 0.1 percent. Production was thus still 4.7 percent below the level produced before the outbreak of the pandemic. The manufacturing sector managed to increase its production by 1.4 percent last year

Among the individual industries, the strongest growth in production was recorded by vehicle production and pharmaceuticals with an increase of 5.7 percent and 5.2 percent respectively. While the producers of pharmaceutical products produced just under ten percent more than before the outbreak of the pandemic, vehicle production was still 13 percent below its pre-pandemic level. The electro industry has regained its pre-pandemic level of production after an increase in output of 2.9 percent in 2022. Marginal drops in production were recorded by the metalworking industry (down 0.2 percent) and machinery manufacturing (down 0.8 percent). In the chemical industry, where production had initially regained its pre-pandemic level in 2021 already, production dropped by a bigger 3.3 percent bringing production back down to seven percent below its pre-pandemic level at the end of 2022. The food industry kept production level with the previous year, one percent more than before the outbreak of the pandemic.

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

At the start of the first quarter 2023, manufacturing output was up on the previous quarter by just over one percent. Production was down in all industries, apart from vehicle production, the electro industry and metalworking. In January, the purchasing managers’ index for manufacturing climbed over the threshold to expansion of 50 points for the first time since September before falling back down to

France: Industrial production*, Purchasing Managers Index

47.4 in February and 47.7 in March in a clear indication of contraction in the first quarter. We expect a mild recovery in the further course of the year which should bring the annual result to just over zero

Italy

Italy’s industry (industrial production excluding construction) did not manage to retain the high pace of growth recorded in the final quarter of 2021 and started off 2022 with production going down one percent quarter on quarter. In the second quarter, production turned up again but only to fall 0.5 percent in the third quarter before stagnating in the fourth quarter. In 2022 overall, industrial production increased by 0.8 percent. The manufacturing sector was slightly weaker, with output stagnating at last year’s level

Among the individual industries in manufacturing, the pharmaceutical industry recorded the strongest growth by far, expanding by 11.4 percent, followed by other transport equipment, which went up by 5.4 percent, less than half as much. Italy’s machinery manufacturers increased their production by 3.9, the electro industry by 2.4 percent. Vehicle producers increased output by a bare 0.6 percent but had nonetheless regained their pre-pandemic level of 2019 by the end of 2022. The energy-intensive industries are suffering visibly from the steep price increases of fossil fuels. Production dropped most tangibly among rubber and plastic product producers, going down by 5.9 percent. The metalworking industry saw production drop 4.8 percent year on year, while the chemical industry curbed its output by 4.1 percent. The food industry went the other way and increased its production by a lean one percent.

The most recent data available indicate further economic recovery. In the manufacturing sector, production increased at the beginning of the first quarter by 0.3 percent over the fourth quarter 2022. Among the individual industries, trends in production varied greatly. While machinery manufacturing, chemicals and vehicle production curbed production, the electro and the metalworking industry increased output. Sentiment has also changed with the turn of the year. The purchasing managers’ index for manufacturing entered into expansionary territory for the first time in six months in January 2023. In February, the index reached its highest level in 10 months, before going down to 51.1 points

Source: Macrobond

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

Italy: Industrial production*, Purchasing Managers Index

in March. Despite a negative carryover effect of 0.3 percentage points, we still expect production to increase by one percent in 2023 overall.

Spain

Spain’s industry (industrial production excluding construction) continued to recover in the first quarter of 2022, with production rising by 0.5 percent compared to the previous quarter. In the second quarter, production increased by 1.3 percent. In the second half of the year, the upward trend started to falter. Industrial production dropped by 0.4 percent in the third quarter before stagnating in the final quarter. In 2022 overall, production grew by 3.1 percent. Manufacturing output expanded by a more moderate two percent.

Among the individual industries of the manufacturing sector, Spain’s vehicle producers were able to increase their production by a robust 8.4 percent. At the end of 2022, they were nonetheless still producing 7.5 percent less than before the outbreak of the pandemic. In machinery manufacturing and the electro industry, in contrast, production was upward, going up by 5.6 and 6.1 percent respectively year on year. Production in both industries was also above its pre-pandemic level by 2022 at the latest. While production in chemicals was down by 4.1 percent, pharmaceuticals produced so much that chemicals and pharmaceuticals, taken together, expanded production by 1.5 percent. Metalworking companies curbed their production by one percent. Output here at the end of 2022 was still 4.1 percent lower than at the end of 2019

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

At the start of 2023, Spain’s industry suffered a small setback. According to the latest figures available, production dropped by 1.4 percent at the beginning of the first quarter 2023 compared to the previous quarter following seasonal and calendar adjustment but was not negative year on year. The purchasing managers’ index for manufacturing exited contractionary territory after a period of seven months and stood at 51.2 index points in March, its second consecutive month above the threshold level of

Source: Macrobond

Spain: Industrial production*, Purchasing Managers Index

50 points which indicates expansion. As the manufacturing sector of Spain has started into 2023 with a positive carryover effect of 0.6 percentage points and the purchasing managers’ index has risen substantially since its low in October 2022, we expect production to increase by one percent in 2023 overall.

Global trade

Global trade activity followed a moderate upward trajectory after its sharp recovery in 2021. In 2022, trade was up by 3.3 percent on the previous year, according to the Netherlands Bureau for Economic Policy Analysis (CPB). After stagnating in the first quarter, trade activity grew 0.7 percent quarter on quarter in the second quarter and 0.2 percent in the third quarter. In the fourth quarter, global trade activity turned down 1.2 percent on the previous quarter and, for the first time in two years, was also negative year on year

In 2022 overall, emerging countries exported three percent more goods than one year ago. With an increase of 10.1 percent, exports from Africa and the Middle East experienced the highest growth. Goods exports from Latin America were up by 6.4 percent year on year. For the first time in five years, exports from the remaining Asian emerging countries (up six percent) outpaced exports from China (down 0.5 percent) Exports from emerging countries in Eastern and Central European dropped by a substantial 4.8 percent

World: Exports according to region of origin

In 2022, exports from advanced economies increased by a total of 2.8 percent. In this group of countries, the greatest momentum was recorded by the United Kingdom. Exports from here surged up 10.2 percent on the back of the poor performance last year. While in 2021, almost all regions expanded their exports by around ten percent, exports from the United Kingdom stagnated. The euro area exported 4.4 percent more goods than one year previously. The United States expanded their exports on a similar scale, with a rise of 4.2 percent. Exports from the remaining advanced economies grew at a slightly slower pace of 2.9 percent. While Japan increased its exports by 0.8 percent, exports from the remaining advanced Asian countries dropped 2.1 percent.

The latest figures show a slight pick-up in trade activity. In January 2023, global exports were 0.8 percent higher than in the previous month. Exports from advanced economies were 1.4 percent up on the previous quarter at the start of the year, while exports from emerging countries were down by a slim 0.4 percent. For 2023 overall, the BDI expects global trade activity to increase by 2.5 percent.

Development of German exports

In the first quarter 2022, German exports rose 12.3 percent compared to the first quarter 2021. Swinging trade with the United States and the European Union were largely responsible for this good result. In the second and third quarter, trade with the United States again pushed up the figures. Exports to the country increased by more than one third in both quarters. Exports to China faltered in the middle of the year. In the fourth quarter, exports to China turned down year on year. In 2022 overall, German exports increased by 14.2 percent compared to the previous year. Looking at the recipient countries and regions, German exports to the United States increased the most for the second year in a row, rising by 28 percent in 2022. Exports to the European Union also recorded above-average growth, climbing 14.5 percent. Trade with China showed the lowest momentum, going up by only 3.2 percent. Exports to the United Kingdom grew for the first time in six years year on year (up 13.5 percent). Exports to the rest of the world were 12.2 percent higher than one year ago

Germany: Exports according to region of destination

In the first two months of the current year, exports increased by 9.4 percent compared to the same period last year, according to preliminary figures from the Federal Statistical Office. Trade with the United States surged 20.1 percent, displaying the strongest growth, like last year. Exports to the EU states were also above average, going up 10.8 percent. Exports to the United Kingdom grew 8.6 percent, displaying similar momentum to exports to the remaining countries (up 8.2 percent). Trade with China did not firm up at the start of the year. Exports fell 10.6 percent compared to January/February 2022. In 2023, we expect German exports to increase by just under two percent in

Industries in Germany

Automotive industry: production continues upward Production

After three very weak years starting with the Covid pandemic in 2020, further recovery is on the cards this year with the upward trend that started in the second half of 2022 set to continue. Supply bottlenecks, which particularly affected semiconductors over the last two years, are starting to ease up. The large majority of companies (72.6 percent) nonetheless still view the shortage of materials as their largest barrier to increasing production, a far bigger problem that the shortage of skilled labour, which only 41.3 percent were struggling with. The low production levels in the last two years were well below demand, causing the order backlog to pile up high. This backlog is now being worked off. Capacity utilisation climbed back up to 86.7 percent, only just below its pre-Covid level. There are also negative factors weighing on the industry. Inflation, while starting to flatten out, is still pulling down demand by squeezing the purchasing power of private households in particular. 2023 will be another year of tough challenges associated with the transition to climate-neutral electromobility

In the first quarter of 2023, domestic production expanded by 39 percent to 1.15 million units but was still nine percent below its 2019 level. For the year overall, we currently expect production to increase by nine percent to 3.79 million passenger cars. From the middle of the year, the upswing is likely to lose steam particularly in view of the year-end rally in 2022 caused by the reduced financial support available for

electric cars in Germany

The production of electrically powered cars is still going at full blast. In the first two months of the year, 29 percent of passenger cars produced in Germany were equipped with an electric motor. The large majority of these (22 percentage points) were pure electric vehicles. Diesel passenger cars (including mild hybrid) only accounted for just under 20 percent, with petrol cars accounting for 51 percent of German passenger car production

The transition to electric engines involves a challenging process of restructuring for the automotive industry. Automotive suppliers are particularly affected by this restructuring process as electric engines are much less complex than conventional ones. In January 2023, the workforce of automotive suppliers was accordingly one percent lower than one year ago at 271,700. On the other hand, the transition also opens up new opportunities. Boosted by a new production facility south of Berlin, the workforce of car producers increased by 1.4 percent over the same period, up to 463,500 employees. All in all, the workforce of companies in the automotive industry increased by 0.6 percent, up to 775,200 employees.

Exports

In the first quarter, exports displayed a similar momentum to production, increasing 37 percent to 839,100 passenger cars. Here too, the backlog in demand has built up a high order backlog. The proportion of exports dropped by a slim one percentage point, down to 73.1 percent. The biggest trade partners in the first two months of 2023 were the United States with 59,000 passenger cars (up 23 percent) just ahead of the United Kingdom with 58,500 units (up 14 percent). China came in third with 35,300 units (down 19 percent).

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

Construction industry: difficult year ahead

The construction industry was curbed by several factors in 2022. The Russian war of aggression in Ukraine has triggered shortages in building materials and steep price increases with knock-on effects on construction prices and demand. Compounding the situation further is the ongoing energy crisis and its diminishing impact on disposable incomes. An equally negative factor are the rising interest rates on the capital markets, making the refinancing of construction measures much more expensive The outlook for 2023 is correspondingly negative. The incoming orders in mainstream construction veritably crashed in the final quarter of 2022, bringing the annual result down 9.7 percent overall. While the volume of orders in hand at the end of 2022 was at a record level of 68 billion euros, the high level was mainly due to the steep increases in construction prices. In real terms, the volume of orders in hand was 9.3 percent lower than one year ago.

Sentiment in the industry has become much bleaker, particularly regarding business prospects. In February 2022, the balance of ratings of expectations in mainstream construction following seasonal adjustment was at minus 14 points. Since then, this figure has dropped steadily and substantially and was at minus 43 points in February 2023.

Construction companies had a reach in orders in hand in February 2023 of 4.2 months, down from five months in February 2022. In view of the slump in demand seen in January, the reach of orders in hand is set to decrease further in the course of the year. In spring, the construction industry anticipated a further fall in revenue for mainstream construction of six percent in real terms. Output of the industry is thus back down to the level recorded in 2015.

The construction of residential housing will suffer particularly from the decline as the parameters here are catastrophic. The almost complete elimination of state support, steep price increases, substantial rises in the interest rates for mortgages, and problems in factoring the high construction costs into the basic rent on the market has scared off potential investors for the long term. This segment is heading for a contraction of nine percent in 2023

In public construction, the nominal budgets at federal, state and municipal level are feeling the stark reality of rising construction costs. In the final quarter of 2022, public construction orders coming onto the market were low as the coffers were already empty. The situation will hardly be different this year. Revenue in public construction is set to go down by five percent this year in real terms.

The situation in commercial construction is slightly better. Warehouse buildings are continuing to profit from the boom in online mail order In civil engineering, the investments of utilities are a stabilising factor, and the Deutsche Bahn is planning to further expand its investments in the rail network

The labour market for construction, in contrast, recorded a positive development in 2022. Over the year, the average number of employees increased by a further 1.8 percent to 927,000. The uptake of new employees is partly a move on the part of employers to prepare for the fact that one quarter of the current workforce are older than 50 and will be retiring in the foreseeable future For the current year, the construction industry is therefore still expecting the size of its workforce to stabilise in comparison to the previous year despite the fall in production.

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

Building materials industry: weak construction activity causes substantial fall in production

The economic prospects for the building materials industry remain weak in spring 2023. The slump in the construction industry, which is the industry’s biggest customer, has deepened in the last few months. Pessimism is particularly tangible in residential construction, but the hefty increase in construction prices and significantly deteriorated financing terms and conditions is also stifling other parts of the construction industry. This is clearly reflected in the weak level of incoming orders and number of building permits in mainstream construction as well as the rise in cancelled projects.

At the start of the year (January 2023), the production of building materials fell by 3.6 percent year on year in real terms continuing the downward trend from last year (production 2022 compared to 2021: down 3.6 percent) All segments of the building materials industry are feeling the brunt of the current downturn, although the downward slide is less pronounced in areas working for civil engineering than in those supplying building construction

The development of the ifo barometer for the building materials industry tells the same story. Companies rated the level of orders in hand, similarly to demand, as hugely deteriorated (down 20 percentage points). Business expectations are still at a very low level (balance: minus 31 percentage points), even though the trajectory has now turned up, according to the latest figures. Although current business is still rated much lower than in spring 2022, it has nonetheless stabilised at around plus 20 percentage points. Even though prospects regarding demand are negative and energy prices are still high, they have stabilised, and business uncertainty has reduced somewhat, both of which are certainly helping to improve business sentiment.

In the further course of the year, the German Building Materials Association (bbs) expects the downward trend to continue. Exports can only marginally compensate for weak domestic demand, as the proportion of foreign trade in the building materials industry is relatively low due to the high transport costs. For 2023, the bbs predicts production to drop by four percent in real terms on average across the industry.

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

The chemical and pharmaceutical industry: business remains difficult Production

The chemical and pharmaceutical industry had a very difficult year last year. Towards the end of the year, the downturn accelerated further. Production contracted more than in the previous quarters. Incoming orders also continued to fall. Companies had to reduce their prices again for the first time in nine months and revenue suffered a robust decline. The results for the year overall were accordingly negative. Production was 6.3 percent below the previous year. In chemicals, excluding pharmaceuticals, production was down by almost twelve percent. The steep increase in producer prices (up 21 7 percent) did cause revenue to rise (up 16 7 percent), but the volume was down substantially The cost increases have not been passed on in full putting pressure on corporate earnings. The current business situation was rated as correspondingly negative by chemical and pharmaceutical companies.

The outlook has, in contrast, brightened up somewhat. In February, more companies expected the business situation to improve in the upcoming six months for the first time since the outbreak of the war. Export prospects and production plans also turned up. The developments on the energy markets have probably triggered this subdued optimism. The German economy was spared a winter of gas shortages and blackouts. The gas and electricity prices have gone done to their pre-war levels. Optimism remained reserved though. The latest figures show prospects clouding over ever so slightly. The situation remains difficult. The process of substituting cheap Russian pipeline gas with LNG and the slow expansion of renewable energy in conjunction with the parallel phase-out of nuclear energy and coal will keep energy prices in Europe high for the long term. Not only does this put the industry at a cost disadvantage but demand is also in short supply. Many chemical companies are facing a shortage of orders.

Even if the market has bottomed out, unlike in previous crises, a robust recovery is not on the horizon. High energy costs, a shortage of orders and problems facing Germany as an industrial location will prevent such a recovery from setting in. For 2023 overall, the German chemical industry association, the VCI, is therefore expecting production to fall by around five percent. Excluding pharmaceuticals, production this year is likely to be around eight percent lower than in 2022.

Reducing exports

Positive momentum from foreign trade has also tailed off over the last few months. The slowdown of the global economy, and particularly the downturn in many industries around the world, is curbing the exports of the German chemical industry. In 2022 overall, exports did increase by 18 percent (only one percent in real terms) but decreased substantially in the second half of the year. This trend is set to continue

German electro and digital industry continues to benefit from electrification and digitalisation

The German electro and digital industry continued its upward trajectory last year While the macroeconomic environment deteriorated substantially over the course of the year, the industry increased its production by 3.5 percent year on year following price adjustment. Growth in the nominal indicators was even higher. The industry’s revenue exceeded its 2021 result by twelve percent, reaching a new all-time record of 224.5 billion euros in 2022. Incoming orders also recorded double-digit growth, going up by 10.2 percent although momentum dwindled somewhat in the course of the year. The electro industry therefore recorded a much better performance in 2022 than the manufacturing sector overall. The first factor fuelling the good performance was the fact that it is not very energy-intensive and therefore not impacted to such an extent by the energy crisis. Secondly, the German electro and digital industry provides an important technological contribution to the transition of the economy to renewable energy and is therefore benefiting from the trend towards electrification and digitalisation

The electro and digital industry also started out 2023 with high growth Revenue for the industry increased by a total of 15.5 percent in the first two months of the year compared to the same period last year. Price-adjusted production and incoming orders were six percent higher year on year. Sentiment

indicators have also brightened up over the last few months. According to the ifo business climate barometer, the business expectations of German electro and digital companies nudged into positive territory in March for the first time since the beginning of the Ukraine war. The current business situation remained positive, as it had throughout the last year, in contrast to business expectations. The number of employees working in the electro industry reached 902,000 employees in January 2023, the first time since the mid-90s that this figure has been over 900,000. At the end of 2022, the workforce in the German electro and digital industry totalled 898,000 which is 2.7 percent or 24,000 more than one year previously. For 2023, the German Electro and Digital Industry Association (ZVEI) expects production to grow between one and two percent year on year after price adjustment. Although the overall economy is likely to grow below average, electro and digital companies still have very full order books.

Electro exports: high growth in 2022, particularly in exports to the United States

The exports of the German electro and digital industry increased by 8.6 percent last year to reach 245.8 billion euros, once again setting a new all-time record. As export prices increased by 7.3 percent at the same time, the increase in real terms was much lower. Exports to the United States recorded particularly strong growth in 2022 (up 23.8 percent to 23.6 billion euros). The United States is still the second largest export market for German electro exports after China (up 5.5 percent to 26.5 billion euros), but the gap between them has narrowed Electro exports in the euro area increased by 8.4 percent to 80.9 billion euros in 2022. The balance of export prospects among electro companies recorded by the ifo Institute for March 2023 was plus 8.9 percentage points, slightly lower than in January 2023 (plus 13 5 percentage points).

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

Digital industry: ITC companies largely resilient to crisis

The digital sector is still largely optimistic about its prospects despite the shortage of skilled labour, war in Europe and persistently high inflation. The business expectations for IT and telecommunication companies for the upcoming months were at 12.2 points in March, the highest level since the start of the Russian war of aggression on Ukraine in February 2022. The rating of current business was at 38.8 points, up 1.5 points on the previous month and the highest it has been since June 2022.

These are the results of the digital index of Germany’s digital association, Bitkom, and the ifo Institute. 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. The index for March was up on February by eight points to 25.1 points bringing it up to the same level as last spring (April 2022: 25.2 points). For comparison: the ifo business climate barometer for the overall economy only recorded an increase of minus 0.8 to 3.8 points.

The forecast for the current year is the main cause for optimism. More than a third of ICT companies (36 percent) plan to increase their investments compared to 2022. Around one half of companies plan to maintain their level of investment (49 percent), with only 15 percent planning on reducing invest-

ments. Within the industry, producers of hardware, terminals and systems are particularly keen to invest with 61 percent planning to increase their investments (goods: 39 percent; service providers: 32 percent).

Employment prospects in the digital sector remain positive for 2023. Three out of ten (30 percent) ICT companies plan to expand their workforce this year. Around two thirds (62 percent) expect to maintain their workforce steady. Only every twelfth ICT company (eight percent) plans to reduce staff in 2023.

Bitkom is expecting companies in IT, telecommunications and entertainment electronics to increase their revenue by 3.8 percent in the current year, which would bring revenue above the 200-billion mark for the first time to 203.4 billion euros. The strongest growth is expected to be in information technology. According to the current forecast, revenue in IT will amount to 126.4 billion euros in 2023. That corresponds to an increase of 6.3 percent.

The market for telecommunications is only set to grow by a lean 0.8 percent to 69.5 billion euros in 2023. The strongest growth in this segment will be in investment in telecommunications infrastructure (up 2.5 percent to 7.7 billion euros).

Entertainment electronics is facing a third year of downward revenue this year, following a short-lived upturn at the beginning of the Covid pandemic. Revenue is expected to total 7.6 billion euros in 2023 which would correspond to a decrease of 7.3 percent.

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

Foundry industry: mixed picture in spring 2023

In 2022, production in the foundry industry was down 1.4 percent on the previous year Production in iron and steel foundries was 1.3 percent lower than last year and 1.8 percent lower in nonferrous metal foundries. The current production volume of 3.9 million tonnes is still 28 percent below the 2018 level. Swelled by high raw material and energy prices, sales in 2022 were 19 percent higher than in the previous year The 600-odd companies operating in the industry currently employ around 70,000 workers, according to the German Foundry Association, the BDG

The mood among German foundries in spring 2022 is mixed. The ifo Institute balance of good and bad ratings as of March was at plus 34.5 points Sentiment is therefore steadfastly in positive territory. In the last few months, the feared setbacks have not materialised. At the same time, expectations for the next six months are still in negative territory although there has been a steady upward trend in the last six months. The balance of good and bad ratings is at minus 9.5 points which is its highest level since the outbreak of the war in Ukraine

The order backlog of German foundries is still on a high level. The record volume of orders received in 2021 and the start of 2022 form the bulk of this backlog, given the current hefty downturn in incoming orders. Although capacity utilisation was at 88 percent in January, which is well above the long-term average of 80 percent, foundries are still having trouble working off orders. The obstacles to production

have eased slightly according to the half-year comparison. While almost two thirds of companies complained of a shortage of staff around six months ago, the proportion of companies affected by this has since dropped to one third.

The latest figures show a more robust situation than feared in autumn 2022, but the industry is still waiting for policymakers to act. Corporations may well start favouring North America in their investment decisions, for example, as the high energy prices put the energy-intensive foundry industry at a severe competitive disadvantage despite having fallen recently. In view of the rising wages and interest rates, securing support from policymakers in the form of a special industrial electricity tariff is a top priority for the industry which is predominantly made up of small and medium-sized businesses.

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

Ceramics industry

Ceramics started off 2022 with a good performance in the first two quarters. The shortage of gas and steep increase in energy costs has nonetheless deeply impacted this energy-intensive industry.

Dinnerware and manufactories managed to expand their project business in 2022, compensating for the downturn during the pandemic and increasing sales by 23 percent in the year overall. The porcelain industry has started off 2023 on a downward trend, with incoming orders dropping seven percent and a turnaround not expected this year.

Technical ceramics also managed to increase total revenue by around 16.9 percent in 2022 year on year, more than compensating for the production low during the crisis. Incoming orders also experienced a robust upswing, surging up by 26 percent. The segment has had a good start to 2023 but could still be curbed by the current economic crisis and recession. The challenging situation among automotive suppliers could well impact sales negatively

Sanitary ceramics emerged largely unscathed from the pandemic. Incoming orders have been positive in the last few years and also in 2022.

Tile producers experienced another year of moderate growth in 2022, increasing revenue by 5.9 percent. The order situation in 2023 nonetheless indicates decreased revenue in the first quarter 2023

All in all, the ceramics industry recorded rising revenue and incoming orders in 2022 year on year

The current volatility caused by Putin’s attack on Ukraine and sanctions may well put an end to the current upwind in the industry. The upward trend among private consumers could well flatten out in 2023 in view of the current recession and high inflation, which could also deflate project business for dinnerware and tiles in particular. 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 persistently high gas prices which translates directly 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

In 2022, earnings in the industry were markedly improved compared to the difficult Covid years. After a strong boom in 2021, air freight followed the general economic trend and turned down and is set to continue falling at a faster pace in 2023. At the same time, the European aviation industry is working to ensure that the efforts to defossilise aviation does not distort competition or shift passenger flows and avoids carbon leakage.

Trend in air travel: In 2022, air travel in Europe stabilised. The number of seats available to, from and within Europe (EU / EEA / UK) was 81 percent as high as in the pre-crisis summer of 2019. Excluding travel to, from and within Germany, the recovery was at 84 percent; in travel to, from and within Germany, seats available were at 70 percent their pre-crisis level. The upward trend is set to continue and pick up pace in 2023. The scheduled number of seats available in the European countries referenced above in the summer months of April to October corresponds to 98 percent of the level in 2019 and in Germany, the volume is back to 82 percent of its pre-crisis level.

The trend in passenger numbers followed the same trajectory as available seats. In 2022, German airports recorded 165 million passengers which corresponds to 66 percent of the pre-crisis level. There are three main 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. Carriers that are moving their flights away from German cities are doing so because the ratio between demand, willingness to pay and costs for charges and fees in Germany no longer adds up The charges imposed by the state, particularly in the form of aviation tax and aviation security fees, on airports in Germany are considerably higher than airports in other European countries making German airports increasingly less competitive German economic hubs have thus lost a considerable amount of their intercontinental and European connectivity.

▪ Local air travel within Germany (flights that both start and end in Germany) contracted: the volume of passenger demand in this segment is down to only 26 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 featuring Germany is strongly influenced by the many congresses and trade fairs held in the country. Many of these events did not take place in Germany on account of Covid and measures imposed to stem the pandemic.

Tourist travel, in contrast, followed a strong upward trend with intercontinental flights displaying high momentum as the United States opened up again. The boom in demand for air freight has tailed off. Following a very strong performance in 2021, demand was a good seven percent down year on year but still around five percent above the very weak pre-crisis year 2019. Further decline is on the horizon with supply chain problems, risk of war, energy shortage, inflation and a looming recession all curbing demand. The absolute cargo volume in January 2023 was much lower than in the previous month of December (down around 45,000 tonnes). This corresponds to a reduction of 14.2 percent compared to January 2022 and a minus of 4.4 percent compared to January 2019. The outlook regarding supply shows an increase of ten percent in the number of seats available between March and August 2023 compared to the same period last year. Airports, air carriers, federal police and handling companies have all taken extensive measures in the area of automation and personnel recruiting to make operations more secure and more efficient.

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

Machinery manufacturing: supply bottlenecks easing up

Production in the machinery and plant manufacturing sector in Germany was 0.5 percent higher year on year following price adjustment, matching the estimates of the German association of machinery manufacturers, VDMA, economists who predicted an increase of around one percent. Looking at the level of orders, higher growth would have been possible, but, as in many other industries, production was curbed by numerous shortages. A shortage of materials and a shortage of skilled staff were the factors predominantly curbing output. Shortages in materials have eased substantially during the past few months, but the situation is still a long way off normal. In March, 67 percent of companies were still complaining of production difficulties due to a shortage of materials. Shortages are also affecting capacity utilisation which was at 88.8 percent in January 2023. This figure is close to the upper limit of the 50-percent scatter range (84 4 to 89 2 percent) and would, in and of itself, be seen as relatively ideal. Given the high level of demand, however, capacity utilisation would normally have risen far higher. Incoming orders also tell the same story. The reach of orders in hand in January amounted to 11.6 months. This figure is lower than the all-time high of 12.1 months registered in October 2022 but still extremely high

The high reach of orders in hand will keep production lines busy producing plants, machinery and components in the coming months. This is good news for machinery manufacturers seeing as incoming orders have been thinning out since the middle of 2022. Numerous factors are curbing the enthusiasm of potential investors and negatively impacting the sensitive demand for capital goods. In spring 2023, there are still a number of uncertainties that could hamper demand for capital goods for some time to come. While inflation in the United States and Europe has receded faster than generally expected for the time being it is still persistently high. The resulting interest rate hikes of the central banks are weighing down private households and companies alike. The uncertainties also still include the war in Ukraine, geopolitical issues such as the tense relations between the United States and China and the particularities of the Chinese economy (property crisis and structural weaknesses) New worries include a possible banking crisis and its consequences.

There are nonetheless also a number of positive factors, including that Europe got through the winter better than expected, commodity prices have fallen substantially, and sentiment indicators have recovered almost all over the world. There are therefore not only challenges and uncertainties but also a great many opportunities, including but not limited to trends towards digitalisation, automation and decarbonisation.

All in all, the VDMA economists expect production to decrease by a mere two percent in real terms despite all the negative factors playing into the equation. Given the number of unknowns, this forecast is obviously exposed to both downward risks and upward potential.

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

Nonferrous metal industry

In March, the situation of the German nonferrous metal industry was much worse than one year ago. In particularly energy-intensive segments such as metal production, the extremely high prices for electricity and gas have curbed production considerably, even causing some facilities to shut down production. An increasing number of companies are lamenting a shortage of orders. Staff shortages also still pose a big challenge. The shortage of materials is particularly pronounced in the case of spare parts with only occasional problems in the supply of inputs In 2022, the industry produced 6.5 million tonnes (down eight percent year on year) and a revenue of 76 billion euros with a combined workforce of 106,000 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 Among the producers of raw aluminium, the biggest drops in production were recorded by the primary aluminium producers (down 33 percent) and refiners (down 16 percent). The drop in production among remelters, whose products are mainly used for further processing of semi-finished products, was less pronounced (down six percent). The production of semi-finished aluminium products posted a fall in production of four percent, down to 2.6 million tonnes Production in the aluminium further processing segment went the other way, rising six percent up to 347,000 tonnes. In the copper industry, the biggest segment, the production of semi-finished rolled extruded and drawn products, recorded a drop in production of five percent compared to the good result last year, down to 803,000 tonnes. The manufacturers of lead, zinc, nickel, tin and other nonferrous metals struggled with production shutdowns due to the soaring energy costs and saw production tumble 21 percent in 2022. In contrast, the output of producers of semi-finished products of zinc, nickel, lead, tin and other nonferrous metals rose by a slim one percent up to 168,000 tonnes. The nonferrous metal foundry industry produced 792,000 tonnes of cast parts last year, just over two percent less than in 2021.

A new era: Germany net importer of semi-finished products for the first time in 2022

Foreign sales of the nonferrous metal industry amounted to 35 billion euros in 2022. Rising imports are a source of concern for the industry, with the export quota dropping down to 46 percent over the same period. Germany has been a net exporter of semi-finished products for a long time. In 2022, imports of

semi-finished products exceeded exports for the first time. This development was fuelled by a tangible increase in imports of five percent up to 2.30 million tonnes and, in parallel, a hefty reduction in exports of nine percent down to 2.26 million tonnes. Germany has also been a net importer not only of ores and concentrates but also of crude metal for several 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 2022, the imports of raw metal increased by eight percent year on year going up to 3.8 million tonnes. Exports of raw metal, on the other hand, dropped ten percent down to 909,000 tonnes.

Paper industry

The German pulp and paper industry has shown relative strength in the extremely difficult environment over the last year. Although production fell by 6.5 per cent to 21.6 million tonnes after the Covid catchup year of 2021, it is back to its long-standing pre-crisis level. The number of employees has remained steady, encouraged by a fair wage agreement jointly supported by the social partners

Many companies were forced to adapt their production to the gas volumes purchased while prices were still at a normal level and fallen demand as customers had stocked up their inventories at the end of the year. The inflated costs for energy and commodities have increased product prices, as reflected by the industry’s rise in revenue of 36.3 percent to 21.2 billion euros. Despite the challenging economic environment, the industry has continued to contribute to the transition towards carbon-neutral production in 2022. The industry needs policymakers to set the right parameters, including a temporary industrial electricity tariff, in order to retain its international competitiveness during this transition

The individual segments of the industry recorded divergent development in 2022. Paper and cardboard for packaging, which is the biggest segment and accounts for 58.9 percent of production, contracted 6.1 percent in 2022. Experts presume that customers stocked up their inventories in 2021 in anticipation of a shortage of paper which then resulted in decreased demand down the line. The drop in the production of graphic paper (production share 27.5 percent) was even more pronounced. Overshadowed by advancing digitalisation, production here dropped 9.4 percent. Sanitary paper (share of production: 6.8 percent) remained steady, with no market distortions either through panic buying or the reduction of accumulated inventories. Technical and special paper (share of production: 6.8 percent) dropped by a moderate and cyclical 3.6 percent

Exports of paper, cardboard and paperboard from Germany fell by 7.7 percent in 2022 year on year, down to 10.5 million tonnes. This means that just under half of German sales were made in exports. Even after a drop of sales within the EU of overall 8.9 percent, the region was still the biggest buyer of the German paper industry, accounting for 72.5 percent of sales. Germany is not only a big exporter but also the biggest importer in the world of paper, cardboard and paperboard, ahead of the United States. Imports fell eight percent, reflecting the general trend. Imports from EU countries fell as much as 9.6 percent

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

Weak demand was the dominant factor at the start of the year. All segments, apart from sanitary paper, saw a tangible drop in the volume of sales The development of the paper industry in the further course of the year will largely depend on general economic trends. There are nonetheless trends that affect the individual segments independently. The paper types required for the basic needs of the population, such as sanitary paper products or food packaging, are indispensable and demand remains relatively stable. E-commerce in Germany is set to grow further to the detriment of stationary retail. Together with the general trend towards non-fossil, sustainable packaging, this will fundamentally strengthen the market for packaging paper and cardboard. Producers of graphic paper will have to see how the advertising market develops in the post-Covid phase and above all in the weak economic environment, and what share print will be able to retain.

Contact: Dr. Thomas Moldenhauer / Phone.: +49 228 2670 542 / Mail: t.moldenhauer@papierindustrie.de

Pharmaceutical industry: boost from vaccines ebbs off, deteriorated parameters weighing on growth

In the last year, the production of vaccines gave the pharmaceutical industry a clear boost. Production in real terms increased by 5.3 percent, with the nominal exports of pharmaceutical products rising by as much as 18 percent. A large portion of these exports were re-exports, which means that they were not produced domestically. This boost has meanwhile ebbed off with domestic sales at the beginning of the year stabilising at their pre-crisis level, almost one quarter lower than in the same period last year. Foreign sales have also turned down according to the latest figures and are likely to remain positive but drop back gradually to their pre-crisis growth trajectory. All in all, sales are expected to drop by around five percent in real terms with production falling by a slightly lower two percent on account of the more favourable starting position

As exports benefited more from the trade in vaccines, the correction here is all the more pronounced. In the course of the year, vaccine exports are expected to fall below the level recorded in the Covid years, down to around 115 billion euros which is five percent less than in 2022 and a drop of nine percent following price adjustment.

These downward trends are no cause for concern as they represent a process of getting back to normal following the pandemic years. The deteriorated economic policy framework and the energy crisis are nonetheless making their mark. Even though the pharmaceutical industry is not energy-intensive in itself, the costs of inputs have experienced a double-digit increase. Key supplier industries are passing on their increased energy costs to their customers, such as the chemical industry with price increases of around one quarter. As pharmaceutical companies cannot adjust their prices due to pricing laws, profit margins have been massively squeezed, affecting the financing available for important investments into the future. Compounding the situation are the burdens resulting from the Financial Stabilization of Statutory Health Insurance System Act. Company surveys show that this has already had a tangible dampening effect on investment plans.

Contact: Dr. Simon Junker / Phone: +49 30 2060 4511 / Mail: s.junker@vfa.de

Steel industry

Since its brief recovery from the pandemic in 2021, the steel industry has continued to decline. The slowdown, which accelerated in the second half of 2022, was largely caused by the Russian war of aggression on Ukraine. Since the start of the war, the energy crisis, high prices, rising interest rates and increasing geopolitical uncertainty have kept the lid on steel demand. Furthermore, continuing supply chain problems deepened the industrial recession in Germany.

In 2022 overall, crude steel production in Germany was again below 40 million tonnes as already in 2019 and 2020. At 36.8 million tonnes, production was around eight percent down year on year and about seven percent below the 2019 level. In the second half of 2022, crude steel production amounted to 17.3 million tonnes which is around eleven percent below the same period the previous year. This is the lowest volume produced in a half-year since German Reunification. The downward trend continued in the first months of 2023. The electricity-intensive electric steel production is currently suffering particularly.

The outlook for the steel industry in Germany is subdued in the next few months in few of the fragile state of the economy. Following a slump last year of more than twelve percent, incoming orders have dropped below their pre-crisis level. According to the latest market outlook of the European steel association Eurofer, the demand for steel within the EU is expected to drop by around two percent this year, following a five percent fall the previous year

The global steel industry also experienced a broad downturn last year. According to figures from the global steel association, Worldsteel, the production of crude steel dropped by a good four percent globally last year compared to the previous year. This represents the first drop since 2015. Production decreased both in China, down two percent, and in the rest of the world, where the drop was a much bigger seven percent. This trend is likely to turnaround soon thanks to the improved state of the Chinese economy. In the first two months of 2023, the global production dropped by a slim one percent year on year

Despite the global drops in production, the European steel industry continues to be marked by a substantial pressure to import. The import quota in 2022 climbed to a historically high level in 2022 due to the persisting structural crisis in the steel industry. This situation may well become entrenched given the considerable differences in energy costs compared to other steel-producing regions in the world.

Contact: Bernhard Krischer / Phone: +49 211 6707 963 / Mail: Bernhard.Krischer@wvstahl.de

Steel and metal processing: production in 2022 drops by 0.3 percent

The positive growth rates recorded since August did not continue until the end of the year. The poor performance in December, at minus 1.6 percent, was responsible for bringing the annual result to just slightly under zero. Decreased demand throughout the course of the year was a primary reason for the weaker months in production towards the end of the year. The automotive industry also suffered downward incoming orders, pulled down by the announcement of a changed funding structure for electromobility from 2023 onwards. The incoming orders for the steel and metal processing industry were around three percent lower than in 2021. Despite the sobering performance at the end of 2022, the

steel and metal processing companies started off 2023 with optimism. In the first quarter 2023, the business climate brightened up considerably. Business expectations, especially, bounced upwards although pessimism still predominates Companies are not expecting business to deteriorate though, with moderate growth of two percent expected at best for 2023. The challenges facing the industry have not diminished but are judged to be containable in view of the recession that is not expected to materialise after all. This does not mean that euphoria reigns. A look at the capacity utilisation of production facilities confirms this with a drop of more than one percentage point between October 2022 and January 2023

The federal government is called on to support Germany and Europe as an industrial location and honour the ‘Year of Industry’ hailed in by the federal minister of economic affairs and climate action by adopting a long-term industrial policy. A reduction in bureaucracy, starting with the energy price brakes, would represent a cost-free way of boosting the economy. This could provide a basis on which to introduce targeted funding schemes which also benefit small and medium-sized industrial companies and supports them during the transition

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

Textile and clothing industry

The economic development within the segments of textiles and clothing were divergent, with clothing emerging much more unscathed from the Covid crisis than textiles in almost every aspect

Sales in clothing surged by 19.4 percent in the course of 2022, while textiles only recorded an increase of 7.7 percent. Foreign sales played a dominant role here, particularly in clothing where foreign sales increased by just over 30 percent while textiles only managed a rise of 11.4 percent. Sales in the domestic market expanded by 14.6 percent for clothing while sales in textiles only edged up 3.2 percent

While clothing is obviously closer to consumers than textiles, textiles was much more affected by the price increases. Textile products require a more energy-intensive production and the price of inputs, most of which are oil-based, multiplied in many areas, particularly in inputs and intermediates procured from within Europe. Both segments struggled with the exorbitant prices for sea freight from South-East Asia which peaked at almost tenfold.

The situation has eased up slightly at last count, especially on account of the falling energy prices. Textiles is still lagging behind clothing, also shown in the number of employees in both segments. While the workforce in textiles was down by 1.2 percent at the end of January 2023, the workforce in clothing was up by 3.2 percent. Sales in textiles showed less momentum than in clothing. This trend is not expected to change in the short term, judging by the current level of incoming orders. The latest figures in incoming orders for clothing show an increase of 7.7 percent over the last three months, while textiles received 4.8 percent less orders over the same period The ifo figures for March confirm this trend. Both incoming orders and expectations for upcoming orders are better across the board for clothing than they are for textiles. This is also largely true for demand from abroad. The ifo sentiment indicators show the same split picture. Clothing is mainly following the cautiously optimistic trend of

industry overall, while the majority of companies in the textile industry are less optimistic both regarding current business and expectations for the upcoming months

According to a survey by the German association for the fashion and textile industry at the turn of the year, the business prospects among textile producers are at a historically low level while companies in the clothing industry are much more optimistic

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 17 April 2023.