Industry Report 05/2024

INDUSTRY POLICY DOSSIER

Industry Report

Industrial production and trade in the individual industries

▪ We expect industrial production in Germany to continue downward and contract another 1.5 percent in 2024 year on year, after decreasing 0.5 percent already in 2023. Demand for industrial goods has fallen tangibly and is only set to pick up in the second half of the year. If the European economy takes much longer to recover, momentum will be even lower. With its specialisation on capital goods and consumer durables, Germany’s industrial sector will only recover from the large external shocks that have affected the global economy later down the line.

▪ German industry has almost lost a decade’s worth of growth in production. In the fourth quarter 2023, manufacturing output was more than seven percent lower than before the outbreak of the Covid pandemic in late 2019. Output was also 13 percent lower than the all-time record notched up in the second quarter 2018. Until now, the electro industry, pharmaceuticals and other transport equipment are the only industries that have returned to or exceeded their pre-pandemic levels of production. At the end of 2023, the gross value added of the manufacturing sector was 3.3 percent lower than in the second quarter 2018.

▪ In 2024 overall, German goods exports (nominal) are set to increase slightly (following a drop of 1.5 percent in 2023). On account of the downtrend last year, this is likely to result in stagnation year on year.

▪ In 2024, we expect the global trade in goods to increase by around two percent (following a drop of 1.9 percent in 2023). Global trade including services should perform slightly better and rise by 2.5 percent (2023: up 1.2 percent). The goods exports of the advanced economies are set to grow much slower than those of emerging countries. Exports are taking longer to recover, with German exports, in particular, lagging behind Europe and the rest of the world.

Global industrial production

In 2023, global industrial production increased by 0.9 percent year on year, according to Netherlands Bureau for Economic Policy Analysis (CPB) figures. The rise in production was considerably lower than the average rise over the past ten years of 2.9 percent. Following a small increase in production in the first quarter 2023, activity declined in the second quarter before picking up again in the second half of the year.

In the emerging countries, industrial production rose by 2.5 percent in 2023 which is also substantially less than the average rise over the past ten years of 4.1 percent. After a good start to the year, industrial production faltered in the second quarter, decreasing 0.8 percent quarter on quarter. In the third and fourth quarter, industrial output picked up again and posted growth both year on year and quarter on quarter.

In the advanced economies, industrial production fell 0.7 percent quarter on quarter in the first quarter 2023. The downward trend continued over the spring and summer quarters before turning around in the fourth quarter. Overall, industrial production in 2023 was down by 1.2 percent year on year.

World: Industrial production*, Purchasing Managers Index

*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 2024, global industrial production nudged down 0.2 percent quarter on quarter. The main downward factor was lower production in the advanced economies. In the emerging countries, industrial production trended upwards in the first quarter. The global purchasing managers’ index for manufacturing crossed the threshold to expansion of 50 index points in January 2024 and continued rising in the two succeeding months. In March, the index reached 50.6 points. The prospects for a global economic upturn have continued to increase so that we expect global industrial production to be 2.5 percent higher than last year.

Advanced economies

In the advanced economies, industrial production in 2023 was 1.2 percent down on the previous year and only 0.4 percent higher than in 2019, the year preceding the Covid pandemic. Production was down across all groups of countries with exception of the United States (up 0.2 percent). Industries in the advanced Asian countries excluding Japan recorded the steepest drop, contracting 5.4 percent. Output was nonetheless still 8.3 percentage points higher than in 2019. Production among other advanced economies was down by a lean 0.4 percent but still 7.6 percent higher than before the outbreak of the pandemic. Industrial output was also downward in the euro area, in Japan and the United Kingdom. Production levels in the United Kingdom were 16.7 percent lower than in 2019 and, in Japan, 6.6 percent lower. Production in the United States, in contrast, was 0.4 percent higher than before the pandemic.

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

Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis

At the start of the first quarter 2024, industrial production in the advanced economies was 1.7 percent lower than in the previous quarter. Production dropped markedly in both Japan and the euro area, while edging up by a marginal 0.3 percent in the United Kingdom. The purchasing managers’ index for manufacturing in the advanced economies climbed in the first two months of the current year. At 49.3 index points at last count, it has remained below the threshold to expansion of 50 points for more than one year now. In view of the mild economic upturn among the advanced economies and the small positive carryover from last year, we expect industrial production among this group of countries to increase by one percent this year.

Emerging countries

Industry in the emerging countries continued to an upward trajectory in 2023, the third year after the Covid pandemic. Following a strong start to the year, momentum eased off in the further course of the year. At 2.8 percent, growth in the year overall was well below the average over the past ten years.

Among the individual groups of countries, industrial value added increased the most in China (up 4.4 percent). In the two years previously, the strongest growth had been registered by the other Asian emerging countries. In Central and Eastern Europe, output was up by 3.5 percent, signalling a rebound following the drop in production the year before. In Latin America, industrial output grew for the third year in a row, this time by 0.7 percent. Industrial production was only downward in Africa and the Middle East, although, at minus 1.4 percent, the drop was moderate.

Emerging economies: Industrial production*, Purchasing Managers Index

Africa/Middle East

Latin America

Central and Eastern Europe

Asia (excluding China)

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

At the start of the first quarter 2024, industrial production in emerging countries was 1.2 percent up on the previous quarter. Almost all the upward momentum came from the Asian emerging countries. Production in Central and Eastern Europe stagnated over the autumn and winter quarters. Industrial output was down for the third consecutive quarter in Africa and the Middle East, and for the second consecutive quarter in Latin America.

The purchasing managers’ index for manufacturing in emerging countries has risen for six months in a row. At last count in March 2024, the index climbed to 52 points, its highest level in 30 months. In view of the economic upwind and positive carryover of over one percent, we expect industrial production in emerging countries to increase by around three percent this year.

United States

US industry (industrial production excluding construction) was not able to maintain the high pace of growth seen in 2022. Industrial production was nonetheless up by one half of a percentage point in the first half of the year before turning down year on year in the third quarter. In the fourth quarter, industrial

activity picked up again turning in a positive though minimal 0.2 percent growth for the year overall, the third consecutive year of upward production. Manufacturing output failed to follow suit, going down by 0.6 percent after two years of growth but remaining higher than in 2019.

Among the individual industries in the manufacturing sector, vehicle production recorded the steepest growth in output for the third year running and exceeded its pre-pandemic level of 2019 for the first time. Producers of computers and data processing equipment increased output by 2.1 percent. The electro industry decreased its activity by a slim 0.6 percent. The chemical industry expanded its output for the third consecutive year, rising 1.4 percent on the back of strong growth in the production of pharmaceutical products. Chemicals excluding pharmaceuticals saw production drop by 1.2 percent. Output was down by 2.8 percent in machinery manufacturing, representing an above-average fall for the industry. Food also saw production drop, decreasing by 2.2 percent.

United States: Industrial production*, Purchasing Managers Index

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

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

In the first two months of the first quarter 2024, manufacturing output was 0.5 percent lower than in the previous quarter. Activity was down in both machinery manufacturing and food, according to the official US figures. The chemical and electro industry tread water while the production of computers and vehicles started off the year with a moderate positive. The purchasing managers’ index for manufacturing has remained above the 50-point threshold continuously since January. In February 2024, the index reached its highest level in 19 months of 52.2 index points before slipping down 0.3 points to 51.9 at last count. In view of the stable development of the US economy, we expect industrial output in the United States to increase by one percent in 2024 overall despite the small negative carryover of minus 0.2 percentage points.

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

China

China’s industry (manufacturing including construction) continued the upward trend from 2022 at the beginning of 2023. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production was 3.8 percent higher in the first quarter 2023 than in the previous quarter (up 2.3 percent year on year). Quarter on quarter, activity then dropped 2.3 percent in the second quarter before turning up again, growing by 3.1 percent in the third quarter and two percent in the last quarter. Year on year growth was also positive. In 2023 overall, industrial production increased 4.6 percent.

According to official Chinese figures, gross value added rose across most industries in 2023. On average, the annual growth rates in car production averaged 13 percent. The chemical industry expanded output by an average of 10.1 percent. The producers of computers and electrical equipment recorded lower growth of 3.5 percent. Growth rates in machinery manufacturing at an average of 12.4 percent were much higher than the 2.8 percent growth recorded in specialised machinery. The production of ships, rail vehicles and aircraft registered a higher increase than the year before, expanding 5.8 percent. Growth was negative in pharmaceuticals and in the production of textiles and clothing, while the production of paper and metal products was up by somewhat more than two percent in both cases.

Industrial production*, Purchasing Managers Index

production (right axis)

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)

Depending on the data source, China’s industrial output was between two and five percent higher at the start of the year. The purchasing managers’ index for manufacturing in China has risen steadily since its last low in October 2023. In March, the index climbed to its highest level in twelve months of 51.1 points. If production remains at the level recorded at the start of the year, production could grow by between five and seven percent in the year overall on account of the positive carryover of over two percent.

China:

Japan

Japan’s industry (industrial production excluding construction) started out 2023 with a decrease in production of over two percent before picking up slightly towards the middle of the year. Industrial activity then faltered once more at the start of the second half of the year and continued downward in the final quarter of the year. For 2023 overall, production was down by 1.3 percent. Output in the manufacturing sector was equally negative, at an average of 1.3 percent down on the previous year.

Among the individual industries, vehicle production once again exhibited the strongest growth, expanding 14.4 percent on the previous year. The electro industry increased its output for the first time in three years (up 4.6 percent) but still produced around one quarter less than before the outbreak of the pandemic. Japan’s machinery manufacturers produced 7.1 percent less than the previous year but at the end of 2023 were nonetheless still producing a good two percent more than before the outbreak of the pandemic. The chemical industry including pharmaceutical products recorded somewhat less pronounced drops, with output falling 4.1 percent year on year. Chemicals excluding pharmaceuticals decreased by more than six percent in 2023. Metal producers and metalworkers reduced their production by four percent, while production in the cement industry decreased 7.7 percent and, in the food, beverages and tobacco industry, by a slim 0.4 percent.

Japan: Industrial production*, Purchasing Managers Index

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

In the first two months of the current year, manufacturing output was more than six percent lower than in the fourth quarter 2023. The main downward factor was the unusually large drop in vehicle production and low activity in machinery manufacturing. The electro industry swam against the tide and saw production increase. The purchasing managers’ index for manufacturing recorded a healthy rise in March 2024. At 48.2 index points, the index has now remained below the threshold to expansion of 50 points for ten months in a row. Japan’s industry started out the year with a positive carryover of 0.4 percentage points. In view of the weak start to the year, production would have to increase substantially in the next few months to turn in a positive result for the year overall.

South Korea

South Korea’s industrial production (excluding construction) was just over eight percent down year on year in the first half of 2023. In the third quarter, production picked up and was only just negative year on year. In the fourth quarter, output was positive both quarter on quarter and year on year (up seven percent). The weak performance in the first six months brought the overall result for 2023 down to minus 2.5 percent overall. The manufacturing sector recorded a similar trend in production.

Among the individual industries in the manufacturing sector, vehicle production (up 11.2 percent) and pharmaceutical products (up 9.5 percent) both recorded a robust growth. At 2.7 percent, the increase in production for metalworkers was much more moderate. The chemical industry saw production contract by 9.3 percent, almost as big a drop as in the previous year. In the electro industry, output was down for the first time in eight years (down 6.3 percent). The output of the food industry also turned negative after many years of uninterrupted growth, going down by 4.2 percent. South Korea’s machinery manufacturers curbed their production by 5.9 percent following two years of growth.

Korea: Industrial production*, Purchasing Managers Index

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

Source: Macrobond

At the start of 2024, industrial activity lost a little steam but was still upward. Production in the first two months of the first quarter was 0.3 percent higher than in the previous quarter (up seven percent year on year). While production was upward in pharmaceuticals, the metalworking industry and the electro industry, production was down quarter on quarter in machinery manufacturing, vehicle production and in the chemical industry. The purchasing managers’ index for manufacturing has gained ground steadily since its low in November 2023. In March, it crossed into expansionary territory again for the first time reaching 50.4 index points. In view of the course of the year so far and the high positive carryover, we expect production to increase by three percent in the year overall.

United Kingdom

The downward trend of the UK industry that set in at the start of 2021 came to an end at the beginning of 2023. Industrial production (excluding construction) increased by 0.1 percent in the first quarter 2023 compared to the previous quarter. The positive trend continued with 0.9 percent growth in the

South

second quarter and 0.1 percent growth in the third quarter, quarter on quarter. In the fourth quarter, output dropped once again bringing the overall result for 2023 down to minus 0.4 percent. The manufacturing sector, on the other hand, managed to increase output by 1.2 percent.

Among the individual industries of the manufacturing sector, vehicle production recorded the strongest growth, producing 18.8 percent more than in the previous year. Metal production increased 5.1 percent and metalworking 3.5 percent. The producers of electronics saw production stagnate. Production was heavily downward in the chemical industry (down 9.1 percent), the furniture industry (down 10.4 percent) and the textile industry (down 14.1 percent). The drop in production among machinery manufacturers was less pronounced at 3.9 percent.

United Kingdom: Industrial production*, Purchasing Managers Index

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

In the first two months of the first quarter 2024, production in the manufacturing sector increased by 1.3 percent compared to the previous quarter. Among the individual industries, vehicle production, metal production and metalworking all expanded output considerably. While producers of data processing equipment increased output somewhat, producers of electronics curbed production. The chemical and pharmaceutical industry also saw production drop. The purchasing managers’ index for manufacturing has increased three times in a row since the turn of the year. At 50.3 index points at last count in March 2024, the index was above the threshold to expansion of 50 points for the first time in 19 months. If production levels remain at the levels seen at the start of the year in the further course of the year, production in the manufacturing sector would increase by around one percent.

European Union

In the European Union, industrial production (excluding construction) rose in the first quarter 2023 compared both to the previous quarter and to the first quarter 2022. The upward trend then turned down in the second quarter, dropping 1.7 percent, and continued down, falling 1.4 percent in the third quarter (quarter on quarter in both cases). Production only turned up again in the fourth quarter.

Overall, industrial production in 2023 was 1.3 percent lower than in 2022. Manufacturing output was equally poor, also contracting 1.3 percent.

Among the individual industries of the manufacturing sector, vehicle production (up 11.4 percent) and other transport equipment (up 10.4 percent) recorded double-digit increases in production. Both industries were nonetheless still producing less than before the outbreak of the pandemic. Pharmaceuticals expanded by 5.4 percent which is not quite as much as in the previous three years. Compared to 2019, annual production was still more than 50 percent higher. Among producers of data processing equipment and optical equipment, output in 2023 was almost 30 percent higher than before the pandemic despite decreasing nine percent year on year. Producers of electrical equipment and machinery manufacturers only saw output rise minimally but still produced ten percent and 4.1 percent more than in 2019 respectively. The persistently high energy prices were certainly a decisive factor fuelling the further downward trend in the production of steel and metal (down 5.3 percent), in the chemical industry (down eight percent), in the paper industry (down 9.6 percent) and among producers of glass and ceramics (down 11.4 percent). The textile industry saw production drop seven percent. It was also more than ten percent below its pre-pandemic level. Clothing producers recorded a more moderate drop in production of 3.3 percent year on year. Output here was still more than one fifth less than in 2019. The food and beverages industry decreased output but still produced more than four years ago.

European Union EU27: Industrial production*, Purchasing Managers Index

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

At the start of 2024 industrial activity lost considerable momentum. Apart from small increases in the food industry, clothing and chemicals, production was down in almost all industries. Steel and metal processing, vehicle production and pharmaceuticals all recorded pronounced drops in output. The purchasing managers’ index for EU industry has remained below the threshold to expansion since July 2022. Although the index gained some ground between its low in July last year and January this year, at 46.3 index points at last count the 50-point mark is still far off. Europe’s industry started out 2024 with a negative carryover of somewhat more than one half a percentage point. While we do expect

industrial activity to pick up in the course of the year, this will probably result in stagnant production for the year overall.

Germany

Germany’s industry (industrial production excluding construction) started out 2023 with a small increase in production of 0.8 percent compared to the previous quarter. Production then turned down in the next three quarters, both quarter on quarter and year on year. In 2023 overall, industrial production was 1.7 percent lower than in the previous year. Manufacturing output fared slightly better, falling by only 0.5 percent.

Among the individual industries of the manufacturing sector, vehicle production exhibited the strongest growth, expanding by 11.8 percent compared to 2022. The only other industries to post growth were the producers of data processing equipment (up 1.6 percent) and other transport equipment (up 6.2 percent). Energy-intensive industries suffered double-digit cuts in production. Output among glass and ceramic producers, for example, decreased more than 14 percent. Output in the printing and paper industry dropped by 12.9 percent in both cases. The chemical industry recorded a decrease in production of 10.6 percent. The output of pharmaceuticals was down by 3.9 percent following three years of straight growth. The metalworking industry saw production drop 3.6 percent, while steel and metal producers curbed their output by 4.1 percent. German machinery manufacturers reduced their output by a moderate 1.3 percent. The food industry produced three percent less. In the fourth quarter 2023, manufacturing output was more than seven percent less than before the outbreak of the pandemic at the end of 2019. So far, only the electro industry, the pharmaceutical industry and other transport equipment have regained or exceeded their pre-pandemic production levels.

Germany: Industrial production*, Purchasing Managers Index

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

Average production in the first two months of the current year was 0.5 percent higher than in the fourth quarter 2023. This may be a sign that German industry has bottomed out, especially as production was also slightly upward in the energy-intensive industries. However, the upticks are on a very

level. The purchasing managers’ index for manufacturing has gained some ground since its low of 38.8 points in July 2023 and had climbed to 45.5 points by the turn of the year. The index then turned down again in February and March, sliding down to 41.9 points, well below the threshold value of 50 index points indicating expansion. Industry also started out the year with a negative carryover of 3.1 percentage points. On account of the high negative carryover and based on estimates from a large number of industries, we expect to see production drop by at least 1.5 percent if the trend turns upwards in the second half of the year. Any further delay in the economic upturn will lead to more pronounced downturns.

After Covid and the energy price shock: German industry falls further behind EU average

The Covid pandemic and the subsequent energy crisis have stifled industrial activity in Germany. While manufacturing output in the EU was already 3.6 percent higher in 2023 than before the outbreak of the pandemic, German industry produced a good 6.5 percent less last year than in 2019. Only very few industries in Germany have managed to exceed their 2019 production levels. Apart from pharmaceuticals, only the electro industry and other transport equipment have managed this, even outperforming the EU. In the European Union, the food, beverages and tobacco industry and machinery manufacturing were also producing more than in 2019. Most energy-intensive industries have recorded double-digit drops in production compared to their pre-pandemic levels not just in Germany but also in the EU overall. Some less energy-intensive industries have also recorded sizeable drops in their production, including textiles, clothing, and printing.

Development of production by industry change between 2019 and 2023, in percent

Sources: Macrobond, own calculatios

France

France’s industry (industrial production excluding construction) started off 2023 with an increase in production of 0.3 percent in the first quarter compared to the previous quarter. In the second quarter, industrial output was up on the previous quarter by one percent and also higher year on year. In the third quarter, the pace of growth eased off a little before turning slightly negative quarter on quarter but remaining positive year on year in the final quarter. In 2023 overall, industrial production was 0.7 percent higher than in 2022 and only 3.7 percent lower than before the outbreak of the pandemic. Manufacturing output also grew, amounting to 0.7 percent more than in the previous year following calendar adjustment.

Among the individual industries in the manufacturing sector, vehicle production increased the most with a rise of 11.3 percent compared to the previous year. Even after growing for three years straight, France’s carmakers were still producing eight percent less at the end of 2023 than before the outbreak of the pandemic. Other transport equipment also chalked up a solid performance, expanding production by 9.4 percent. France’s machinery manufacturers expanded their activities by 5.3 percent following a drop the previous year. The electro industry increased its output for the third year in a row, expanding 3.9 percent in 2023. Trending the other way, the metalworking industry contracted by a slight 1.2 percent. The chemical industry’s dip in production was slightly less pronounced, at 0.9 percent. The gap to production levels in late 2019 also narrowed, slimming down to two percent. The producers of pharmaceutical products curbed their production for the first time in six years, by a lean 0.9 percent, but this was still more than before the outbreak of the pandemic. The food industry produced 2.5 percent less than in the previous year, which was also a good three percent less than in 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

Source: Macrobond

At the start of the first quarter 2024, manufacturing output was 0.7 percent lower than in the previous quarter but narrowly higher year on year. The purchasing managers’ index for manufacturing has

France: Industrial production*, Purchasing Managers Index

gained ground since its last low in December 2023 but still remains in contractionary territory, standing at 47.1 in February and 46.2 in March. We expect activity to pick up slightly in the further course of the year. On account of the positive carryover of 0.5 percent, an increase in production of one percent should be within reach.

Italy

Italy’s industry (industrial production excluding construction) started out 2023 with a drop in production of 1.8 percent in the first quarter compared to the previous quarter. Production was also firmly downward in the second quarter, falling a further 1.3 percent. After turning upwards briefly in the third quarter, activity dropped by another 0.5 percent in the final quarter of the year. In 2023 overall, industrial production was 2.9 percent lower. The manufacturing sector fared slightly better, with output down by 2.2 percent year on year following calendar adjustment.

Among the individual industries in the manufacturing sector, production expanded the most in 2023 in other transport equipment (up 11.3 percent) and pharmaceuticals (up 9.4 percent). Vehicle producers also recorded a solid rise in production of 6.1 percent, exceeding pre-pandemic levels in late 2023. The production of Italian machinery manufacturers remained stagnant in 2023 (down 0.1 percent) but was still 5.5 percent higher than in late 2019. In the electro industry, production dropped by one percent. Energy-intensive industries continued to be weighed down by the high energy prices. The chemical industry curbed its output by 6.7 percent following a drop of over four percent the previous year. The metalworking industry saw production contract 3.4 percent year on year. The food industry registered a slightly more moderate drop in production of 1.8 percent. The producers of rubber and plastic products expanded production by a slender 0.5 percent.

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

The latest figures do not yet indicate economic recovery. At the start of 2024, production in the first two months of the first quarter 2024 was 0.6 percent lower than in the fourth quarter last year and three percent lower year on year. The purchasing managers’ index for manufacturing has climbed steadily since its low in November. The index reached its highest level in twelve months in March, entering

Italy: Industrial production*, Purchasing Managers Index

expansionary territory for the first time at 50.4 index points. Despite the negative carryover of 0.8 percentage points, we expect production to increase by 0.5 percent in 2024 overall.

Spain

Spain’s industry (industrial production excluding construction) was unable to continue its upward trend at the start of the year. In the first quarter 2023, production was 0.5 percent down quarter on quarter. In the second quarter, the downward slide accelerated with production falling 1.1 percent. The tide then turned in the second half of the year. Industrial output was still down by a tiny 0.3 percent in the third quarter but then grew 0.6 percent in the fourth quarter. In 2023 overall, production decreased 0.9 percent. Manufacturing output rounded off the year with minimal growth of 0.1 percent following calendar adjustment.

Among the individual industries of the manufacturing sector, Spain’s vehicle producers were able to increase their production by a healthy 9.3 percent. At the end of 2023, they were nonetheless still producing one percent less than before the outbreak of the pandemic. The electro industry also recorded a strong rise of 8.1 percent. In contrast to the vehicle producers, output in the electro industry was a good one sixth higher than before the outbreak of the pandemic. In machinery manufacturing, growth flattened out to a low 0.4 percent, but production was still higher than before the outbreak of the pandemic. While the output of chemicals alone fell 2.2 percent, pharmaceuticals laid down a good performance so that chemicals and pharmaceuticals, taken together, produced 1.8 percent more. Metal producers and metalworkers produced 1.7 percent less year on year and were also producing 5.5 percent less at the end of 2023 than in late 2019.

Spain: Industrial production*, Purchasing Managers Index

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 2024, Spain’s industry continued to grow. According to the latest figures available, production in the first two months of the first quarter 2024 was 0.7 percent higher than in the fourth quarter last year following seasonal and calendar adjustment. Production was also higher year on year.

The purchasing managers’ index for manufacturing has recovered well since its last low in October. In February 2024, the index exited contractionary territory for the first time in ten months and hit 51.4 index points in March, well above the threshold to expansion of 50 points. Given that the manufacturing sector of Spain started out 2024 with a positive carryover of 0.5 percentage points and Spain’s industry is pointing upwards, we expect production to increase by two percent in 2024 overall.

Global trade

Global trade activity contracted for the first time in two years last year. In 2023, trade was down by 1.9 percent on the previous year, according to the Netherlands Bureau for Economic Policy Analysis (CPB). Trade activity had already been firmly downward in the fourth quarter 2022 and the slide continued, although with less momentum. In the first quarter 2023, trade activity fell by 0.8 percent quarter on quarter, before shedding another 0.5 percent in the second quarter and 0.6 percent in the third quarter. The trend turned around in the fourth quarter, with activity expanding by a thin 0.4 percent.

In 2023 overall, emerging countries exported 0.6 percent more goods than one year ago. China increased its exports by three percent while Central and Eastern European emerging countries recorded the sharpest increase, with exports expanding eight percent. Exports were down from all other regions. Latin America and the other Asian emerging countries, the two regions that expanded their exports the most last year, saw exports drop by 1.2 percent and 3.9 percent respectively. Exports from Africa and the Middle East were 1.7 percent down year on year.

World: Exports according to region of origin

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

Source: Macrobond

Exports from advanced economies decreased by a total of 1.5 percent in 2023 overall. In this group of countries, the greatest downward momentum was recorded by the United Kingdom. Exports from here plunged eight percent following a sharp increase the previous year. Exports from the euro area were 2.8 percent lower than one year ago. Exports from Japan decreased 1.3 percent, which is moderate, compared to the 3.4 percent drop of export activities recorded by the other advanced Asian countries. Exports from the United States bucked the negative trend and climbed 3.4 percent. Exports from the other advanced economies also increased, but by a much lower 0.4 percent.

The latest figures show trade activity picking up. In January 2024, global exports were 1.8 percent higher than in the previous month, following a 0.1 percent increase in December 2023. Exports from the advanced economies expanded 0.7 percent in January 2024 month on month, which is much less than exports from emerging countries which increased 3.9 percent in the same period and 6.5 percent year on year. In 2024 overall, the BDI expects global goods exports to increase on a scale of two percent and global trade by 2.5 percent. We expect trade to gather momentum particularly in the second half of the year.

Development of German exports

In the first quarter 2023, German goods exports rose 7.4 percent compared to the first quarter 2022. This increase was largely triggered by booming trade with the United States and the United Kingdom, where exports posted double-digit growth in both cases. In the second quarter, export activities started to falter. Alongside the downward trade with China, exports to the United States were also down. The downward trend accelerated in the fourth quarter and encompassed all regions, with the exception of the United Kingdom which continued to receive more exports right through to the end of the year. In 2023 overall, German exports were 1.5 percent lower than in the previous year. Germany’s share of global exports increased slightly in 2023 but, at 7.2 percent, is still below the average over the last ten years (7.8 percent).

Germany’s share in global exports

Sources: IMF, Macrobond, own calculations

Looking at the destination countries and regions, German exports to the United Kingdom increased the most, rising by 6.4 percent. Exports to the United States rose by a much flatter 1.1 percent. Exports

to the European Union were 0.5 percent lower than one year ago. Exports to China diminished by a sizeable 8.8 percent. Exports to the rest of the world were 0.8 percent higher than one year ago.

In the first two months of the current year, exports increased by 2.8 percent compared to November/December 2023, according to preliminary figures from the German Federal Statistical Office. Exports to EU countries expanded the most, rising by a robust 7.5 percent. Exports to the United States only grew by a sluggish 0.3 percent. Going the other way, exports to the United Kingdom decreased by 3.9 percent, to China by 1.7 percent and to the rest of the world by 2.5 percent compared to the previous two-month period. German goods exports should rise slightly in the course of the year. Stagnation is on the cards for 2024 overall on account of the downtrend last year.

Germany: Exports according to region of destination

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

Sources: Macrobond, Deutsche Bundesbank

Industries in Germany

Automotive industry: negative start to the year for production

Production

Last year, domestic car production continued to solidify and rose 18 percent bringing the total up to 4.1 million passenger cars. This was still twelve percent below the pre-pandemic level in 2019. In the first quarter 2024, production registered a setback of nine percent. There were diverse reasons for this development. One reason was the Houthi attacks in the Red Sea which shifted shipping routes around the Cape of Good Hope and resulted in production outages. Another was the decision by the Federal Constitutional Court reversing the reallocation of funds to the Climate and Transformation Fund which led to a complete and sudden stop to the environmental bonus for electric cars, thus markedly reducing domestic demand for battery electric vehicles. Last but not least, there were two working days less in the first quarter this year than in the previous quarter. For the year overall, we expect domestic car production to move sideways.

After China, Germany is the second most important production location for electric passenger cars in the world, ahead of the United States. In 2023, the production of electric passenger cars increased by 43 percent to 1.27 million vehicles. This means that 31 percent of all passenger cars produced in Germany were electric. The proportion of pure battery electric vehicles (BEV), at 23 percent, was substantially higher than the percentage of diesel cars, which was down to 20 percent. Accounting for 49 percent, petrol-powered cars were still the most popular choice. The remaining eight percent of domestic production were plug-in hybrid vehicles (PHEV).

Capacity utilisation in the automotive industry registered a small drop in the first quarter, going down from 85.4 percent to 84.1 percent, according to ifo Institute figures. While capacity utilisation was downward among commercial vehicles and automotive suppliers, it increased from 80.3 percent to 83.3 percent among carmakers. The recent uptick in incoming orders, following a good year of pointing down, has pushed capacity utilisation up. The high backlog of orders has been largely worked off, the backlog of domestic orders has settled down on the level of 2019 and is 41 percent lower than in the previous year. The shortage of skilled labour has now become the major barrier keeping production down, with low new orders and material shortages close at heel. In the passenger car segment, material shortages remain the biggest problem.

The industry’s workforce has increased slightly overall at the start of this year. In January, the number of workers in the automotive industry totalled 780,100, which is 0.4 percent more than one year ago. The growth in employment was fuelled particularly by motor vehicle producers, who increased their workforce by 0.8 percent to 467,700 workers. The number of people working for producers of trailers and vehicle bodies even increased by 1.2 percent to 40,500 workers. Automotive suppliers recorded a slight drop of 0.6 percent down to 271,900 workers.

Exports

In the first quarter, exports fared slightly better than production, dropping only five percent down to 790,700 passenger cars. The proportion of exports thus increased by 3.5 percentage points, up to 78.5 percent. The biggest trade partner in the first two months of the year was the United States with 68,300 passenger cars (up 15 percent), moving ahead of the United Kingdom again, which received

65,400 passenger cars (up twelve percent). France came in third with 35,000 units (up 16 percent). China dropped from third to sixth place, behind Italy and Spain, with 27,700 units (down 21 percent).

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

Construction industry: 2023 and 2024 both difficult years

In spring 2024, the trends in the German construction industry are divergent. Overall, civil engineering is in better shape than building construction (although road construction is weaker). Within building construction, public construction is expanding while residential construction, in particular, remains mired in a deep crisis. These divergent trends are also reflected in the sentiment indicators. In March 2024, the seasonally adjusted sentiment indicator for building construction was at minus 51 points while civil engineering was at minus 14 points.

The construction industry continues to face huge problems on account of the high interest rates (despite the current downtrend) and the steep increases in construction prices, although these are set to ease to a halt at some point this year. According to a survey conducted by the German Chambers of Industry and Commerce this year, construction companies started out the year most worried about energy and raw material prices, weak demand, and high labour costs.

The number of building permits (figures only available for building construction) is an advance indicator of how this year will pan out. In 2023, the estimated construction costs in residential construction were 34 percent lower in real terms. Building permits for commercial construction were 18 percent down while permits in public building construction were more or less stagnant.

Incoming orders for mainstream construction trended similarly. In 2023 overall, incoming orders were down by 4.4 percent in real terms. While new orders in civil engineering increased by three percent, they were 11.4 percent lower in building construction, with residential construction registering a particularly drastic plunge of 19.8 percent. In 2023, companies in residential construction were still feeding off their high backlog of orders but this will no longer be possible in 2024. The reach of orders in hand fell by almost one half between February 2022 (6.1 months) and March 2024 (3.3 months). In civil engineering, the reach of orders in hand remained stable.

In the current year, the construction industry expects revenues from construction activity in mainstream construction to fall by 3.5 percent. This would be the fourth consecutive year of downward revenue. Residential construction will be particularly badly hit once again, as mainstream construction in this segment operates almost exclusively in new construction. State funding, which has been significantly reduced, cannot compensate for the steep rises in interest rates and construction costs by a long shot. Residential construction is heading for a drop in revenue in 2024 of twelve percent in real terms.

Commercial construction has also been affected by the sluggish momentum. In building construction, the trends within the different types of buildings are mixed but the overall trend will be pointing down this year. In civil engineering, infrastructure orders (Deutsche Bahn, underground trains, electricity grids) are set to boost demand and production in particular. In the current year, revenue is expected to increase by a lean one percent in real terms.

In public construction, on the other hand, the prospects for building construction are positive. There are several large orders in the pipeline for building construction and rising demand in the other civil engineering segment (not road construction). Overall, revenue here should increase by two percent in 2024 in real terms.

The labour market for construction has proved to be relatively stable. After sustaining a long period of expansion until 2022, the number of workers in the industry remained stable in 2023 at 928,000. In the current year, the workforce is expected to contract for the first time in 15 years, with a reduction of 10,000 workers or 0.5 percent. Had it not been for the fact that one quarter of workers are older than 55 and will therefore retire from active service in the foreseeable future, the cut in the workforce would have been more substantial.

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

Building materials industry: downward trend to continue in 2024

The slump in demand for building materials continued at the start of 2024. After an historically steep plunge of 16.7 percent in 2023, production dropped another 15.3 percent from January to February 2024. Demand has tumbled primarily on account of the crisis dogging residential construction in the wake of increased interest rates, steep construction and land prices, and intense uncertainty. It goes to follow that production in segments that supply the residential construction industry plunged the most, such as the sand-lime brick, aerated concrete, and brick industries. In 2023, production in these subsegments averaged out at more than 30 percent lower year on year. Some subsegments with a more diverse customer base are faring slightly better but recording considerable drops in production, nonetheless.

The downward trend in production is expected to flatten out in the further course of the year, largely because the steep slumps in demand registered from the second quarter of last year onwards will bring the baseline down. In 2024 overall, the German Building Materials Association (bbs) expects production to fall by between five and ten percent in real terms. The industry is only likely to stabilise at a low level in 2025. Further development will largely depend on the development of the main relevant parameters such as interest rates and state funding.

Sentiment in the building materials industry is currently very subdued, matching the downward trend in production. The rating of current business in the building materials industry, as measured by the ifo barometer, has dropped continuously since autumn 2021 and stood at the very low level of minus 26 percentage points at the end of March 2024. Business expectations were even worse at minus 44 points, but they did inch upwards at last count albeit in very pessimistic territory.

The gloomy business sentiment reflects the very high degree of uncertainty in the industry. This is making many companies hold back their investments and cut rather than expand capacities. In January 2024, the workforce was around three percent smaller year on year. The bbs expects to see further moderate reductions in the workforce and downward investment in the further course of the year

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

Chemical and pharmaceutical industry: business remains difficult

The German chemical and pharmaceutical industry finished off last year with a disappointing performance in the final quarter. The industry struggled with low new orders as many industrial customers at home and abroad have been forced to cut their production recently. Producer prices and industry revenue continued their nosedive. The production of chemicals tread water in a deep trough with underutilised capacities. The result for 2023 overall was correspondingly poor with production 7.8 percent lower than in the previous year. The drop in chemicals excluding pharmaceuticals was 10.1 percent which represents its second consecutive double-digit fall. Revenue also plunged, going down 13.7 percent year on year to 225.5 billion euros. While pharmaceuticals managed to hold revenue steady, the revenue for chemicals tumbled 17.6 percent. Thanks to the expanded workforce in the pharmaceutical industry, the workforce for the industry overall grew to a total of 479,500 workers (up 0.5 percent). In chemicals, the size of the workforce contracted by almost two percent.

Companies in the industry still rate their current business situation as difficult. Almost all companies are trying to reduce costs. Reports of extensive restructuring measures and efficiency programmes are on the increase. Measures include shutting down production facilities, discontinuing individual business areas, spin-offs and relocating investment abroad.

Prospects for the upcoming months are not rosy. According to the ifo barometer, the majority of companies in the industry are not expecting business to improve in the first six months of 2024. The German economy is set to stagnate this year. The recession besetting industry is threatening to last longer than expected. With the current environment of low global economic momentum, high energy and commodity prices, excessive regulation, increasing labour costs and a shortage of skilled labour, many industries are likely to cut their production this year. For the chemical and pharmaceutical industry, this means that new domestic orders are not likely to improve tangibly in 2024.

Foreign trade is not in much better shape. In Europe, which is the largest export market by far, many customer industries are nosediving and keeping demand for chemicals low. While industrial activity is expected to pick up slightly in the course of the year in the United States and Asia, it remains to be seen how much the German chemical and pharmaceutical industry can benefit from this positive trend. Production costs in Germany are currently not competitive and there is no improvement to this situation in sight. The energy and raw materials markets remain tight and increasing red tape and labour costs as well as persistently high taxes and levies pose additional burdens for production.

The sluggish global economy, weak industrial activity and noncompetitive framework conditions: the chemical industry is stuck in a very difficult fix. For 2024 overall, the German chemical industry association, the VCI, expects the industry’s revenue to drop by 3.5 percent. Producer prices are set to carry on falling, with production volumes stagnating at a low level.

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

German electro and digital industry in for a dip in growth

The German electro and digital industry again increased revenue in 2023 overall, although momentum dropped considerably during the second half of the year. Overall, industry revenue in 2023 totalled 237.9 billion euros which corresponds to an increase of six percent compared to 2022. Although priceadjusted production stagnated last year (up/down zero percent), the electro and digital industry is the only large industry in Germany that is currently producing more than before the outbreak of the pandemic. At the end of 2023, the German electro industry employed a total of 908,000 workers. This is not only 1.1 percent or 10,000 workers more than one year ago but also more than at any time since the end of 1995. Although (clocked in) short-time work increased slightly over the last few months (up to 22,600 persons), it is on a much lower level than the record level registered in May 2020 (when 181,700 workers were on short-time work).

The German electro and digital industry started off 2024 with a downward movement. In the first two months of the year, price-adjusted production was down by 5.9 percent, nominal revenue by 4.2 percent and incoming orders by 10.5 percent, all compared to the previous year. This may well indicate the scale of change to be expected during the first six months of the year when the negative base effect will carry particular weight.

In its latest forecast, the German Electro and Digital Industry Association (ZVEI) forecasts the priceadjusted output of the German electro and digital industry to drop by two percent in 2024. Prospects are looking gloomy on account of the weak overall level of industrial activity in Germany, the downward incoming orders (down 1.9 percent in 2023) and the globally challenging environment (geopolitics, trade dispute, high interest rates, US elections, etc.). Furthermore, the electro industry started out the current year with a negative carryover on account of the downward trend in production in the second half of 2023. This is likely to represent merely a little dint in the industry’s growth trajectory given the still intact megatrends towards increased electrification, digitalisation and automation. Business should pick up in the second half of the year. The expectations of electro companies as recorded by the ifo barometer also point this way, improving for the fifth time in a row at last count, with a slim majority expecting business to improve in the next six months.

Electro exports: China still top destination

The German electro and digital industry exported goods worth 253.8 billion euros (up 2.7 percent) abroad last year. As in the previous few years, China received the largest share of exports, totalling a value of 25.6 billion euros, although this was 3.5 percent down year on year. Exports to the United States increased by 5.4 percent in 2023, up to 24.9 billion euros. Exports to the euro area increased by 5.6 percent to 86.3 billion euros.

According to the monthly survey of the ifo Institute, in March 2024, the majority of electro companies expected their export business to deteriorate in the next three months. The balance of export prospects was minus 5.5 percentage points, down from the slight positive registered the previous month (plus four percentage points).

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

Foundry industry: critical situation

In 2023, production in the foundry industry was down 1.6 percent to 3.868 million tonnes. In the same period, revenue increased by 1.2 percent to 13.985 billion euros. Production in iron and steel foundries in 2023 was 2.8 percent lower than the previous year but three percent higher in nonferrous metal foundries. Despite the drop in production, iron and steel foundries still managed to increase their revenue by 2.4 percent while the revenue of German nonferrous foundries edged down 0.3 percent even though production increased. After the first six months of 2023, the output of the industry was still 1.4 percent higher year on year but then the situation deteriorated steadily over the further course of the year. The 550-odd companies operating in the industry currently employ around 70,000 workers, according to the German Foundry Association, the BDG.

In spring 2024, the mood among German foundries is poor. The ifo barometer for the foundry industry stood at minus 41 points in March. Prospects for the next six months have improved considerably since their historic low in October. However, ratings here remain deep in negative territory with a balance of minus 40 points. A grim explanation for the seemingly less pessimistic view of future business is the substantial deterioration in current business. One year ago, the balance of good and bad ratings was at 35 points. Current business had tumbled to minus 43 points at last count in March 2024.

The main reason for the gloomy sentiment among companies in the industry is the weak development of demand. Incoming orders dropped tangibly in the course of 2023 and have been weak this year so far. Foundries received 14 percent less new orders than the previous year in the first two months of this year. Production was down by six percent in the same period. For comparison, production was a good 27 percent lower in January and February this year than in the same two months in 2019! The industry is in a critical situation.

Foundries are not just struggling with low demand but also with volatile customer behaviour, making production planning very problematic. The weak overall climate for business investment in Germany is very problematic for the foundry industry as its components are used across all industries. At the same time, German foundries are losing ground due to their exposure to non-competitive electricity prices. Although the prices on the energy markets have dropped considerably from their peak levels following the outbreak of the war in Ukraine, international competitors are still only paying a fraction of what the German foundries are paying.

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

Ceramics industry

The year 2023 was a mixed year for the ceramics industry with very heterogeneous trends.

Dinnerware and manufactories suffered a drop in sales of 4.5 percent in 2023. The porcelain industry also had a downward start to the year with incoming orders sliding seven percent. Business is expected to point down throughout 2024.

Technical ceramics recorded an increase in overall revenue of around 15.2 percent in 2023 compared to 2022. Incoming orders and production were nonetheless both well down on the previous year. A

clear downward trend is expected for 2024 as well with the economic crisis and recession buffeting the segment. The difficult situation among automotive suppliers is also slimming down sales and demand from this industry is expected to fall still further.

Sanitary ceramics is also suffering badly from the recession and low level of construction activity. As a result of debate on the new German heating law, sanitary measures have shifted from installing bathrooms to installing oil heaters, gas heaters and heat pumps. This development has also had a negative impact on tile producers.

Tile producers were the only segment to continue the upward trend in revenue in 2023, going up by 19 percent. Judging by the level of incoming orders in 2023, down 23 percent compared to the previous year, prospects for the current year are not looking good.

In 2023 overall, the fine ceramics industry recorded an increase in revenue, while incoming orders and production were down. The recession is not yet reflected in the figures on revenue. The current volatile situation with recession and economic crisis in Germany is curbing private consumption.

In addition, the carbon pricing scheme introduced in Germany on 1 January 2024 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 continued to improve compared to the difficult Covid years but are still lagging behind the rest of Europe. The downward trend in air freight is set to continue, driven down by stalling economic growth and the fact that shipping routes are up and running again. At the same time, the industry is working to advance efforts to defossilise aviation.

Trend in air travel: In 2023, air travel in Europe continued to recover from the slump triggered by the pandemic. The number of seats available to, from and within Europe (EU / EEA / UK) was 93 percent as high as in the pre-crisis summer of 2019. Excluding travel to, from and within Germany, the recovery was already at 96 percent; in travel to, from and within Germany, seats available were only at 79 percent their pre-crisis level. The upward trend is set to continue in 2024. The scheduled number of seats available in European countries excluding Germany in the summer months of April to October corresponds to 104 percent of the level in 2019 and in Germany, the volume is back to 89 percent of its pre-crisis level.

The trend in passenger numbers followed the same trajectory as available seats. In 2023, German airports recorded 197 million passengers which corresponds to 79 percent of the pre-crisis level and year on year growth of 20 percent. The main drivers of this development are the following:

▪ European point-to-point carriers are increasingly shifting their fleets and business activities to airports outside of Germany. Carriers are moving their flights away from German cities

because of the steep increases in public charges and fees in 2024 imposed in Germany such as aviation tax, aviation security fees and flight security fees. These charges and fees on air travel in Germany have become considerably higher than in other relevant European countries and has led to a decrease in the number of flights available to and from German airports. German economic hubs have thus lost a considerable amount of their intercontinental and European connectivity, greatly reducing their appeal.

▪ Local air travel within Germany has shrunk considerably since 2019: the volume of passenger demand in this segment is still at only 50 percent of its pre-crisis level. Traffic has shifted to rail or road particularly in the case of decentral routes that are not connected to Germany’s main international airports, Frankfurt and Munich. Seats available here in 2023 were at 25 percent compared to 2019 and also decreased year on year, sliding down another two percent in 2023 compared to 2022.

▪ Long-distance air travel is also affected by the regulations distorting competition. In the major market segment Germany-Asia, the shift towards hubs outside of the EU such as Doha, Dubai and Istanbul that has been observed for several years is continuing.

Tourist travel, in contrast, continued to trend upwards with intercontinental flights also displaying high momentum. The demand for air freight pointed down in 2023 again, contracting seven percent compared to the previous year and clocking in at two percent below its pre-pandemic level in 2019. Military conflicts and weak economic momentum in Germany are weighing down demand. Prospects for the summer season 2024, which covers the period from April to October, are good with seven percent more seats available than in the same period last year. This corresponds to 89 percent of the 2019 level.

Contact: Dirk Helf / Phone: +49 30 5200 771 45 / Mail: dirk.helf@bdl.aero

Machinery manufacturing: decline in new orders accelerating

Production in the machinery and plant manufacturing sector in Germany was 0.6 percent lower year on year following price adjustment, undershooting the estimates of the German association of machinery manufacturers, VDMA, which had predicted a decrease of around one percent. The year 2023 was split in two. During the first six months of the year, production increased slightly on account of the high backlog of orders. In the course of the year, this order backlog was worked off and consequently stopped propping up production levels. By July 2023, correspondingly, technical capacity utilisation among machinery manufacturers had dropped to 88.8 percent, at the higher end of the 50-percent scatter range. Capacity utilisation continued to decline tangibly in the further course of the year. In January 2024, capacity utilisation was down to 85.2 percent, close to the bottom of the 50-percent scatter range which is 84.4 percent. The reach of orders in hand also dropped considerably and was down to 10.3 months in January 2024. This figure may appear high, but it should be viewed with caution as the average reach for machinery manufacturers also includes plant manufacturers which often have a reach of several years. Furthermore, the trend in production shows that some companies have already worked off their backlog. Compounding the situation further, 36 percent of companies are already reporting that a lack of orders is hampering production. Price-adjusted incoming

orders were already twelve percent down on the previous year last year and recorded successive double-digit decreases of ten percent in both January and February 2024. Incoming orders from abroad seem to have bottomed out but have not yet turned around. Shortages have thus shifted from supply to demand. Material shortages have largely eased up and the shortage of skilled labour is no longer the biggest obstacle to increasing production. The size of the industry’s workforce is stagnant because many companies have scaled down their intentions to hire new staff and put more workers on shorttime work because of the sluggish economic momentum overall.

The year 2024 is set to be challenging for machinery manufacturers in Germany. The global economy is still slow which affects Germany’s export-oriented machinery manufacturers particularly. On a positive note, a turnaround in interest rates is close at hand in the euro area and in key markets. Hopes are that this will boost investment and brighten up export prospects. In addition, the progressive reduction in stocks of parts and components relevant to machinery manufacturing could animate demand in those subsegments dependent on inventories. It will take some time for momentum to pick up. While the global purchasing managers’ index for manufacturing indicates that the international industrial cycle has bottomed out, sentiment in German industry as measured by the ifo business climate barometer is still almost as low as after the outbreak of the war in Ukraine. The economy is only expected to tangibly improve in the second half of the year and machinery and plant manufacturers are late on in the cycle and will only benefit from improved sentiment and capacity utilisation among its customers somewhat down the line. All in all, the VDMA economists expect production this year to drop by around four percent following price adjustment.

Contact: Florian Scholl / Phone: +49 69 6603 1374 / Mail: florian.scholl@vdma.org

Nonferrous metal industry

In March, the situation of the German nonferrous metal industry was worse than one year ago. The extremely high prices for electricity and gas are much higher than those faced by international competitors and have resulted in curbed production levels and the shutdown of some production facilities in Germany in energy-intensive segments, in particular such as metal production. Most recently, 65 percent of nonferrous metal companies surveyed suffered from a lack of orders. In 2022, some customers were prompted to buy considerably more than they needed because of concerns of material shortages going forward. Consequently 2023 was an unfortunate mix of low economic momentum and customers with full warehouses. Workers were on short-time work in 27 percent of companies surveyed, but 22 percent of companies still suffered from staff shortages with high sickness rates primarily due to the large number of older workers. In 2023, the industry produced 5.9 million tonnes (down ten percent year on year) and a revenue of 64 billion euros with a combined workforce of 107,000 employees and 630 companies. Domestic sales accounted for 53 percent of the revenue and represent 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 drop in production was recorded by the primary aluminium producers. After a drop of more than 30 percent in production in 2022, German smelting works registered a further 45 percent tumble in 2023, producing somewhat more than a third (37 percent) of the amount they were producing before the energy crisis. Germany

was the biggest producer of primary aluminium in the European Union until 2021. Since then, companies in Germany have been forced to take drastic measures due to the persistently tense situation on the German electricity market. One of the remaining four German aluminium smelting works shut down for good at the end of 2023. The production of remelters, whose products are mainly used for further processing of semi-finished products, was less pronounced (down seven percent). Refiners were the only group to post a slight growth of one percent. The production of semi-finished aluminium products was down by nine percent to 2.3 million tonnes. Production in the aluminium further processing segment contracted 14 percent, down to 298,000 tonnes. Within the copper industry, the biggest segment, the production of semi-finished rolled extruded and drawn products, recorded a drop in production of 22 percent compared to the previous year, down to 629,000 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 lose another 19 percent down to 323,000 tonnes. At the same time, the output of producers of semi-finished products of zinc, nickel, lead, tin and other nonferrous metals slumped down 15 percent to 142,000 tonnes. The nonferrous metal foundry industry produced 834,000 tonnes of cast parts last year, three percent more than in 2022.

Slump in foreign sales

Foreign sales of the nonferrous metal industry amounted to 30 billion euros in 2023. The export quota was at 47 percent. Germany has been a net importer not only of ores and concentrates but also of crude metal for several years now. 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 2023, the imports of raw metal crashed down 56 percent year on year to 1.8 million tonnes. Exports of raw metal tumbled 41 percent down to 560,000 tonnes over the same period. In 2022, imports of semi-finished products exceeded exports for the first time. In 2023, Germany was once again a net exporter of semi-finished goods. The turnaround was principally triggered by a hefty downslide of 17 percent in imports down to 1.9 million tonnes, which outweighed the seven percent drop in exports, bringing them down to 2.2 million tonnes.

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

Paper industry: race to catch up after Covid stalls

The year 2023 was marked by a clear decrease in revenue and production for the German pulp and paper industry, putting a stop to progress made to catch up following the Covid-induced slump. At the end of 2023, the industry’s key indicators were worse than they have been in a long time. Production across all segments dropped by 13.7 percent in 2023, down to around 18.6 million tonnes which is the lowest level it has been in the last 20 years. The total volume of German pulp and paper sold contracted by 13.1 percent compared to the previous year, down to only 18.8 million tonnes. Furthermore, the industry’s revenue dropped by a disproportionate 27 percent, down to 15.5 billion euros. This reflects substantial price discounts which are cutting into the profitability of the industry’s companies. High energy, raw material and transport costs continued to weigh on the paper industry in 2023 and have not been compensated by the product prices. The workforce of the industry has nonetheless remained constant and only dropped by 1.3 percent.

The divergent trends that have emerged within the individual segments of the industry in the last few years continued in 2023. The industry’s biggest segment, the paper and cardboard for packaging, increased its share of overall production by four percent in 2023 compared to 2022, up to 63 percent. At the same time, the production of paper and cardboard for packaging dropped by a hefty 7.9 percent in 2023. This reflects the general economic lull as the trend in paper and cardboard packaging is closely aligned to general economic development.

The drop in the production of graphic paper was much more drastic. Graphic paper production crashed down 30.5 percent and meanwhile only accounts for 22.2 percent of total production. This corresponds to a decrease in the proportion of production of 5.5 percentage points compared to 2022. On top of the economic recession, this segment is suffering from the advancing digitalisation.

Exports of paper, cardboard and paperboard from Germany fell by 10.2 percent in 2023 year on year, down to 12.1 million tonnes. A total of 9.2 million tonnes of paper and cardboard produced in Germany were sold abroad, which is still just under half of German production. The EU is still the biggest buyer of the German paper industry and increased its proportion of sales by 3.7 percentage points up to 76.2 percent. Sales to Eastern EU countries increased.

The industry had a weak start to 2024. Production and overall revenue increased by 4.6 and six percent respectively compared to the 2023 average. Industry revenue was 13.3 percent lower in the first two months of 2024, year on year

The economic slump in 2023 and the weak start to 2024 is constituting an existential crisis for many companies, especially as 2022 was downward already in terms of volume. High energy, commodity and transport costs as well as ever diminishing planning certainty due to impulsive turnarounds on the part of policymakers continue to dog the industry. Another decisive factor for development going forward is the trend in consumer demand, which may be positive if inflation rates drop further in the course of the current year.

Contact: Dr. Thomas Moldenhauer / Phone: +49 171 3158 542 / Mail: t.moldenhauer@papierindustrie.de

Pharmaceutical industry: production drops down to pre-crisis trajectory

Following the boost provided by the high demand for vaccines against Covid, the production of pharmaceuticals dropped down to a more normal, lower level last year. Price-adjusted production was 3.5 percent lower and price-adjusted revenue 4.3 percent down, which is not such a bad result given the considerably higher levels in 2022.

The production of pharmaceuticals is set to increase by around two percent in 2024. The latest figures indicate growth. Production is already well above the average production level last year. While incoming orders dropped at last count, this was largely due to domestic demand easing off after increasing following the wave of illness over the winter months. New orders from the rest of the world indicate a stable upward trajectory in exports going forward.

The most recent indications from policymakers are positive and are one reason why the industry is continuing to increase its workforce more than on average and is optimistic about future prospects. Investment plans have brightened up tangibly in the wake of the pharmaceutical strategy adopted by the federal government.

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

Steel and metal processing: production in 2023 down 3.5 percent year on year

In the final quarter of 2023, the downward momentum of production continued to pick up pace, shedding 6.1 percent both quarter on quarter and year on year. Production in 2023 overall was 3.5 percent lower than in the previous year. Figures for the first two months of 2024 are even weaker, with production down another 7.1 percent. Without the boom in the defence industry, steel and metal processing would be in even worse shape.

Demand remains subdued with orders down 3.7 percent in 2023 and down 4.3 percent at the start of 2024. March has therefore not heralded in positive spring feelings within the industry. Although business sentiment has increased by five points, both components of the index are still well into negative territory. The improvement in business prospects of 10.2 index points more than compensated for the deterioration of 0.4 points in the rating of current business. The proportion of companies that rated current business as good dropped again by more than one percentage point to 16 percent. The proportion of companies that are optimistic about their future prospects increased by 1.8 percentage points up to 13.9 percent. The share of companies that rated current business and prospects as negative was around one third in both cases. Based on the approximately 500,000 employees in the industry in Germany this could be taken to indicate that around 165,000 jobs are at risk.

The way to improve sentiment would be to create stable, competitive framework conditions for Germany as an industrial location. Policymakers will squander the last shred of trust if individual ministries continue to announce further well-intentioned projects in the media without first reaching agreement within the coalition and with the individual federal states. The government’s Growth Opportunities Act is one of the latest examples of this style of policymaking that undermines trust. Company leaders that have no confidence in the visions and pledges of German policymakers will not opt to invest in Germany.

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

Steel industry at an historically low level – sights set on stabilisation

At the start of 2024, crude steel production showed signs of stabilisation. In the first two months of the year, production continued at the low level of an annualised volume of around 37 million tonnes. Last year, around 35 million tonnes of crude steel were produced. Since peaking in 2007, the production of crude steel in Germany has fallen by over ten million tonnes, which corresponds to around one quarter. Compared to the pre-pandemic level in 2018, production is down by around twelve

percent (five million tonnes). The production volume of electric steel producers, which include many medium-sized businesses, has plunged during the energy crisis over the last two years. In 2023, electric steel production was at its lowest level in thirty years. Production in this segment is characterised by a high proportion of bought-in electricity and stands to be additionally burdened by the impending increases in grid fees.

Steel demand within Germany is divergent to the general trend in the rest of the EU. The steel industry is suffering from weak demand. The downturn in industrial activity has a particularly large impact on the steel industry. Demand within dropped by around eleven percent in 2023 and is currently at an historically low level of under 29 million tonnes. Since its peak in 2007, German domestic demand has shrunk by around 14.5 million tonnes which corresponds to roughly one third.

The outlook for the steel industry in Germany is subdued. At the start of 2024, incoming orders were pointing down and well below the pre-pandemic level. According to the global steel association, worldsteel, the steel industry in Europe is currently facing bigger problems than in other regions of the world. The key domestic customer industries of the German steel industry are confronted by considerable problems which means that the demand for steel in Germany is unlikely to improve tangibly in 2024. The global steel association is only expecting a technical recovery this year largely attributable to inventory cycles. With a volume of under 30 million tonnes, production this year is not set to exceed the very low level of the Covid crisis year of 2020. This is well below the development in the industrialised countries overall where production is set to rise a good six percent above the prepandemic level this year.

Contact: Bernhard Krischer / Phone: +49 211 6707 963 / Mail: Bernhard.Krischer@wvstahl.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 | Industrieproduktion und Handel nach Branchen“, as of 22 April 2024.