Industry Report June 2022

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June 2022 INDUSTRIAL POLICY DOSSIER

Industry Report Industrial production and trade in the individual industries

Industry expects manufacturing output in Germany to increase by two percent. This forecast is based on the assumption that supply bottlenecks will be resolved in the second half of the year and that energy supply remains secure.

Mixed picture for manufacturing sector in the European Union. While pharmaceuticals, electrics and electronics, and the European machinery manufacturing industry recorded double-digit growth in production, vehicle production failed to increase output for the fourth consecutive year.

In 2022 overall, German goods exports expected to increase 2.5 percent in real terms. The BDI had forecast four percent growth in January. The zero-Covid strategy of the Chinese government has put pressure on the supply and value chains of German industry. Steep increases in non-energy commodity prices and fossil fuels, only a part of which can be passed on to customers, are adding additional strain and increasingly becoming a competitive disadvantage for affected economies.

We expect world trade to increase by five percent in 2022. Goods exports from advanced economies anticipated to grow substantially slower than exports from emerging economies.


Industry Report | Industrial production and trade in the individual industries 13/06/2022

Content Global industrial production .............................................................................................................. 3 Industrial production in advanced economies ....................................................................................... 4 Industrial production in emerging economies ........................................................................................ 5 United States ......................................................................................................................................... 6 China ..................................................................................................................................................... 7 Japan ..................................................................................................................................................... 8 South Korea........................................................................................................................................... 9 United Kingdom ................................................................................................................................... 10 European Union .................................................................................................................................. 11 Germany .............................................................................................................................................. 12 France ................................................................................................................................................. 13 Italy ...................................................................................................................................................... 14 Spain ................................................................................................................................................... 15 Global trade ......................................................................................................................................... 16 Development of German exports ........................................................................................................ 17 Industries in Germany ...................................................................................................................... 19 Automotive industry: supply bottlenecks constrain production despite full order books ..................... 19 Construction industry stuck between high backlog of orders and material shortages ........................ 20 Building materials industry: production-side risks substantially increased ......................................... 21 Chemical industry: dark clouds in the sky for chemicals ..................................................................... 21 German electro and digital industry: solid start to the year ................................................................. 22 Digital sector ........................................................................................................................................ 23 Foundry industry .................................................................................................................................. 24 Ceramics industry ................................................................................................................................ 25 Aviation ................................................................................................................................................ 26 Machinery manufacturing .................................................................................................................... 27 Nonferrous metal industry ................................................................................................................... 28 Steel and metal processing: first quarter production 1.8 percent down year on year ......................... 29 Textile and clothing industry ................................................................................................................ 30 Imprint ................................................................................................................................................ 31

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Global industrial production Global industrial production expanded 7.9 percent in 2021, according to figures published by the Netherlands Bureau for Economic Policy Analysis (CPB). This more than compensated for the drop in production triggered by the pandemic in 2020. In the first quarter 2021, global industrial production was already above the pre-pandemic levels of the fourth quarter 2019. Following a robust rise in the first quarter, stagnation set in over the next two quarters. Industrial output only picked up again in the fourth quarter 2021, expanding 1.3 percent over the previous quarter. In emerging countries, industry had already recovered from the pandemic-induced slump by the end of 2020. Industrial production continued its upward trend in the first quarter 2021 before contracting marginally in the second quarter (down 0.3 percent). It then stagnated in the third quarter before gathering momentum again in the fourth quarter, inching up 0.8 percent. On account of the high statistical overhang from the previous year, global industrial production in 2021 was 9.2 percent higher than in 2020. Industrial production in advanced economies recorded a strong rise in the first quarter 2021, but only exceeded pre-pandemic levels in the second quarter. Following a slight downturn in the third quarter, production turned up 0.8 percent in the fourth quarter. Year on year, industrial production increased by 6.6 percent. In the first quarter of the current year, global industrial production rose 3.2 percent compared to the first quarter last year. The consequences of the war in Ukraine and the lockdown in China are only marginally reflected in these figures. The global manufacturing purchasing managers’ index remained at an expansionary level, but, at 52.2 in April, was at its lowest level in 20 months. The prospects for the further course of the year are meagre given the global political turbulences. If the production levels seen at the start of the year are maintained throughout the year, an increase of just over five percent is still within reach. World: Industrial production*, Purchasing Managers Index 60

20

55 10

50 0 45

-10 40

emerging economies advanced economies Purchasing Managers Index seasonally adjusted (left axis)

35

-20 2018

2019

2020

2021

2022

*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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Industrial production in advanced economies Industrial production in advanced economies was still 2.1 percent below pre-pandemic levels at the end of 2020. While production in the United States, the United Kingdom and Japan was still between 4.7 and 3.9 percent below pre-pandemic levels, in the advanced Asian states excluding Japan it was already 5.1 percent higher than before the outbreak of the pandemic. The upward trend in production continued into 2021, with 4.6 percent growth in the first quarter and 0.9 percent in the second. In the year overall, industrial production for this group of countries increased by 9.4 percent and was 13.1 percent above pre-pandemic levels at the end of the year. Industrial production in the other advanced economies increased by 7.5 percent year on year, surpassing its pre-pandemic level by 5.5 percent at the end of 2021. While industrial activity in the United Kingdom remained below its 2019 level despite growing by four percent in 2021, industrial production in the euro area increased by 7.4 percent year on year and in the United States by 5.5 percent, bringing it back up to pre-pandemic levels by the end of 2021. In the first quarter 2022, industrial production in the advanced economies expanded by 1.4 percent compared to the previous quarter. Industrial activity rose across all groups of countries. The manufacturing purchasing managers’ index for this group of countries dipped for the second time in a row in April 2022, but, at 56.3 points, was still at an expansionary level. On account of the low statistical overhang and the continuing problems in logistics around the world, we expect industrial production for 2022 overall to increase by only one to two percent.

Advanced economies: Industrial production*, Purchasing Managers Index 60

25

55

15

50 5 45 -5 40

35

other advanced economies Euro area Japan USA Purchasing Managers Index seasonally adjusted (left axis)

-15

30

-25 2018

2019

2020

2021

2022

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Industrial production in emerging economies Among the emerging countries, China was the only country in which industrial production was above its pre-pandemic level at the beginning of 2021. The other Asian emerging countries got production back up to pre-pandemic levels by the middle of the year, following growth of 1.7 percent in the first quarter and 3.5 percent in the second quarter. With an increase of 12.4 percent in 2021 overall, growth in industrial production in this group of countries even outstripped that of China. Industrial output in Central and Eastern Europe also reached its pre-pandemic level in the middle of the year, following growth of 0.2 percent in the first quarter and 2.9 percent in the second. The annual increase of 4.6 percent, while positive, was lower than average for emerging countries. In Africa and the Middle East, the gap between current production levels and pre-pandemic production levels was the most pronounced. Growth of between two and 3.5 percent in the first three quarters and 0.5 percent in the fourth quarter was not enough to regain pre-pandemic levels. In the year overall, industrial production in these countries only grew by 3.8 percent and was at 2.3 percent below its pre-pandemic level at the end of 2021. In Latin America, industrial production levels were down for the seventh consecutive year in 2020. A strong first quarter in 2021 and slight growth in the second half of the year brought the annual growth rate up to 8.1 percent and production back up to pre-pandemic levels. In the first quarter 2022, industrial production in the emerging countries rose by 4.9 percent compared to the previous quarter. Growth was fuelled mainly by the strong increase in industrial activity in the Asian emerging countries and in Africa and the Middle East. In the same period, industrial production in Latin America and in Central and Eastern Europe only grew slightly. In March 2022, the manufacturing purchasing managers’ index recorded its first decrease in six months, dropping below the expansion threshold down to 48.1, its lowest level in the last 23 months. On account of the low statistical overhang and the slowdown on the horizon, industrial production in the emerging countries in the current year is likely to expand by around six percent, slightly less than in the previous year. Emerging economies: Industrial production*, Purchasing Managers Index 55

20

10 50

0

45 Africa/Middle East Latin America Central and Eastern Europe Asia (excluding China) China Purchasing Managers Index seasonally adjusted (left axis)

-10

40

-20 2018

2019

2020

2021

2022

*Production index: two-month average, after calendar and seasonal adjustments, in percent, year on year Sources: Macrobond, Netherlands Bureau for Economic Policy Analysis (CPB)

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

United States Following a weak start to the year in 2021, industrial production (excluding construction) in the United States picked up in the further course of the year. In the second half of the year, output expanded 5.5 percent year on year in the third quarter and 4.4 percent in the fourth. For the year overall, production was up by 5.5 percent although still 2.2 percent below annual growth in 2019. Manufacturing output grew slightly more, by 5.9 percent, but was still more than one percent below its pre-pandemic level. Among the individual industries in the manufacturing sector, vehicle production posted the highest annual growth in 2021, expanding by 12.1 percent. Above average growth in production levels was also recorded by machinery manufacturing, at 10.1 percent. The electrical and electronics industry increased its output by six percent, manufacturers of computers and data processing equipment by 8.1 percent. In the food industry, production increased for the first time in three years (up 1.9 percent). Basic chemicals recorded an increase of 2.2 percent following a four-year downturn in production. The production of pharmaceutical products increased by 11.1 percent. In the first quarter 2022, manufacturing continued to pick up pace swiftly. According to U.S. statistics, production levels were above the pre-pandemic levels from the fourth quarter of 2019 in almost all industries. Computer manufacturers, machinery manufacturing and the pharmaceutical industry all recorded double-digit growth. Vehicle manufacturing is the only industry producing below its prepandemic level of output. The manufacturing purchasing managers’ index has risen steadily since the beginning of 2022 and reached a seven-month high of 59.2 index points in April. In view of the statistical overhang of just over two percentage points and the continuing stability of the U.S. economy, we expect output here to increase by five percent in 2022. United States: Industrial production*, Purchasing Managers Index 65

20 15

60 10 55 5 50

0 -5

45 -10 40 -15 35

-20 2018

2019

Industrial production (right axis)

2020

2021

2022

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)

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

China Chinese industry (manufacturing including construction) continued its upward trajectory at the start of 2021. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production in the country rose by 5.1 percent in the first quarter 2021 compared to the previous quarter. Growth dropped over the summer months, decreasing by 2.7 percent in the second quarter compared to the first quarter and 0.9 percent in the third quarter. Output was nonetheless up in both quarters year on year. In the fourth quarter, industrial activity turned around, rising 2.6 percent above the previous quarter. For 2021 overall, industrial production increased by 10.6 percent. In the first quarter 2022, gross value added continued to grow across almost all industries, according to Chinese figures. In the first three months of the year, automotive production was up by an average of 1.5 percent year on year. The chemical industry increased its output by 1.8 percent, and the manufacturers of computers and electrical equipment by as much as 12.2 percent. Machinery manufacturing increased its output by 7.4 percent, with the output of specialised machinery up by a slightly higher 7.5 percent. All in all, industrial production recorded clear gains in the first quarter of this year. The second quarter looks to have been considerably poorer. The zero Covid strategy of the Chinese government curbed industrial activity significantly. The production of passenger cars in April was down by a third compared to the same period the previous year. Production was also down in specialised machinery (down 5.5 percent) and in other transport equipment (down six percent). Activity only increased slightly in machinery manufacturing and in the manufacture of computers and electrical equipment. The manufacturing purchasing managers’ index wavered closely around the threshold of 50 points between July 2021 and February 2022. It then dropped down in March, indicating a decrease in production. In April, it dropped a further 2.1 index points falling down to its lowest point in 27 months. If production levels regain first quarter levels in the second half of the year and the cuts in production caused by the pandemic are limited to one quarter, production growth for 2022 overall should reach around six percent. China: Industrial production*, Purchasing Managers Index

55

40 30

50

20 10

45

0 -10

40

-20 2018

2019 Industrial production (right axis)

2020 2021 2022 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)

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Japan Japan’s industry (industrial production excluding construction) failed to recover in the first three quarters of 2021, and even dropped below the production level of late 2020. Industrial activity only picked up at the end of 2021, with production in the fourth quarter up both quarter on quarter and year on year. For 2021 overall, production increased by 5.6 percent. Manufacturing output proved slightly weaker at 4.2 percent higher year on year. Among the individual industries, machinery manufacturing posted the best performance, increasing production by 16.4 percent. Machinery manufacturing is the only industry in Japan that has so far managed to produce more than before the outbreak of the pandemic. The electrical and electronics industry managed to increase production slightly (up 1.8 percent). Metal producers and metalworkers increased their output by 4.1 percent. Vehicle production stagnated, producing one fifth less at the end of 2021 than before the outbreak of the pandemic. Production in the chemical industry including the production of pharmaceutical products increased by 3.4 percent year on year. Chemicals excluding pharmaceuticals performed better, increasing 3.8 percent in 2021. Output was down in the cement industry (down 2.1 percent) and in food, beverages, and tobacco (down 0.8 percent). In the first quarter of the current year, manufacturing output rose by 0.8 percent compared to the previous quarter. This growth was largely due to increased activity in machinery manufacturing and the pick-up in vehicle production, which compensated the decrease in production in chemicals and electricals and electronics. At 53.5 index points in April, the manufacturing purchasing managers’ index remained at an expansionary level but has lost ground since the start of the year. If Japan’s industry manages to maintain the production levels recorded in the last three months, production should increase by just over one percent for the year overall. The starting position is rather difficult though, given the statistical overhang of 0.7 percentage points from the previous year.

Japan: Industrial production*, Purchasing Managers Index 60

30 20

55

10 50 0 45 -10 40

-20

35

-30 2018

2019

Industrial production (right axis)

2020

2021

2022

Purchasing Managers Index, seasonally adjusted (left axis)

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

South Korea Industrial production (excluding construction) in South Korea recovered rapidly from a 0.6 percent dip in production in the second quarter of 2021. In the third quarter, production increased by one percent compared to the previous quarter and then a further 1.1 percent in the fourth quarter. In 2021 overall, production increased by 7.3 percent. Manufacturing output exhibited a somewhat stronger recovery, increasing output by 7.5 percent year on year. Among the country’s key industries, the electrical and electronics industry recorded the strongest growth, expanding 20 percent year on year. South Korea’s machinery manufacturers also increased production by a robust 8.7 percent. The chemical industry recorded a 7.6 percent increase in production putting a stop to the downturn it experienced from 2019 to 2020. The production of pharmaceutical products expanded by another three percent, building on the strong increase recorded in the previous year. Vehicle production managed to expand its activities (up 4.4 percent) following five years of declining output. While all other key industries have managed to regain pre-pandemic levels of production, output in vehicle production is still below the level recorded before the outbreak of the pandemic in 2020. Production also increased in the food industry, rising one percent. At the beginning of 2022, industrial activity in South Korea increased robustly. The electrical and electronics industry registered double-digit growth in production in the first quarter compared to the previous quarter. Output in vehicle production exceeded its pre-pandemic level for the first time. In the pharmaceutical industry, output grew by 2.9 percent while dipping slightly in basic chemicals. Manufacturing output increased by 3.8 percent across all industries. The manufacturing purchasing managers’ index has remained above the expansion threshold of 50 points since October 2020. In April, the index rose 0.9 points to 52.1 points. If South Korea’s industry continues on its current upward trajectory, production could expand by six percent in the year overall.

South Korea: Industrial production*, Purchasing Managers Index 60

13

55

8

50

3

45

-2

40

-7 2018 2019 Industrial production (right axis)

2020 2021 2022 Purchasing Managers Index, seasonally adjusted (left axis)

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

United Kingdom The United Kingdom’s industrial sector was able to compensate for a large part of the production drops from the previous year over the second and third quarter 2021. Industrial production (excluding construction) increased both compared to the previous quarter and compared to the same period the previous year. Industrial activity only started to flounder slightly towards the end of the year with production dropping down to 3.7 percent below output levels in the last quarter before the outbreak of the pandemic. For 2021 overall, production still increased 5.1 percent. Manufacturing output increased more, growing by 7.2 percent. Among the individual industries, machinery manufacturers recorded above-average growth of 17.5 percent. Output in the fourth quarter 2021 was nonetheless still just over six percent below the fourth quarter 2019 level. Chemicals and pharmaceuticals, and electrics and electronics manufacturers, on the other hand, registered growth of four percent, 3.8 percent, and 8.9 percent respectively, exceeding pre-pandemic output levels in all cases. Output in vehicle production was 4.3 percent higher than the previous year but still one fifth lower than at the end of 2019. In the first quarter 2022, industrial activity increased by a total of 1.3 percent compared to the previous quarter. In the individual industries, metal producers and metal processors as well as the electrical and electronics industry recorded an above-average expansion in production. Output was down in chemicals, pharmaceuticals and in vehicle production. The manufacturing purchasing managers’ index stood at 55.2 and 55.8 index points in March and April respectively, signalising an increase in production for the time being. If production levels remain at the level recorded at the beginning of the year throughout the further course of the year, manufacturing output for the year 2022 should increase by somewhat more than two percent.

United Kingdom: Industrial production*, Purchasing Managers Index 70

30

20 60 10

50

0

-10 40 -20

30

-30 2018

2019

Industrial production (right axis)

2020

2021

2022 Purchasing Managers Index, seasonally adjusted (left axis)

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

European Union In the European Union, industrial production (excluding construction) has been above pre-pandemic levels since the final quarter of 2020. In the first six months of 2021, industrial production continued to recover, rising 1.5 percent quarter on quarter in the first quarter and 0.1 percent in the second quarter. Activity started to slacken off in the second half of the year. Following a decrease of 0.5 percent in the third quarter, production stagnated in the final quarter. In the year overall, industrial production in the EU increased by eight percent on account of the low level of production in the year of the pandemic. Manufacturing output fared slightly better, growing by 8.7 percent in 2021 overall. Among the individual manufacturing industries, pharmaceuticals (up 16.8 percent) slightly outperformed the electrical and electronics industry (up 16.6 percent) in 2021. Double-digit growth was also recorded by machinery manufacturers (up 12 percent) and the metal processing industry (up 11.5 percent). Excluding pharmaceuticals, the chemicals industry recorded an increase in production of 5.9 percent. The food industry also continued its upturn, increasing output by 3.7 percent. Vehicle production failed to recover from its slump in production in 2020, the year of the pandemic, and recorded further slides in production (down 0.3 percent). After two years of the pandemic, vehicle production at the end of 2021 was still just over 20 percent under its pre-pandemic level and production in other transport equipment 12.8 percent lower. All other industries had exceeded their pre-pandemic production levels by the end of 2021. In pharmaceuticals, production was 21.2 percent higher, in the electrical and electronics industry 11.2 percent higher.

European Union EU27: Industrial production*, Purchasing Managers Index

65

30 20

55 10 45

0 -10

35 -20 25

-30 2018

2019

Industrial production (right axis)

2020

2021

2022

Purchasing Managers Index, seasonally adjusted (left axis)

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

The purchasing managers’ index for EU industry remained at an expansionary level of 55.3 percent in April despite dropping down to its lowest level since January 2021. The prospects for the further course of the year are subdued due to the substantial bottlenecks in key intermediates and commodities. If production levels seen in the first quarter are maintained throughout the year, production in the European Union could grow by 1.5 percent.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

At the start of 2022, industrial activity picked up and increased output in the first quarter by 1.6 percent compared to the fourth quarter of last year. Pharmaceuticals expanded by a robust 12.3 percent compared to the previous quarter. The food industry and other transport equipment both recorded high single-digit growth. The electrical and electronics industry also had a good start to the year (up 2.5 percent), as did the steel and metal processing industry (up 1.7 percent). While machinery manufacturing stagnated, production in vehicle manufacturing and basic chemicals dropped by 0.7 percent in each case. Germany German industry (industrial production excluding construction) proved unable to continue its recovery following the turn of the year 2020/2021. In the first two quarters of 2021, industrial activity was slightly down year on year, before dropping by a more substantial 2.1 percent in the third quarter and then moving sideways in the fourth quarter. Industrial production only increased 3.6 percent in 2021 overall compared to the previous year on account of the high statistical overhang. The manufacturing sector only performed marginally better, with output increasing 3.7 percent following seasonal and calendar adjustment. Compared to the year before the outbreak of the pandemic, production was down by 6.9 percent. Among the individual sectors, the electrical and electronics industry recorded the strongest growth in production with an increase of 9.8 percent, followed by the steel and metal processing industry, which racked up growth of 8.5 percent, and machinery manufacturers with 7.2 percent growth. The chemical industry registered an increase in production of 5.3 percent in 2021. Producers of pharmaceutical products exceeded their production level of last year by 5.9 percent and basic chemicals by a slightly lower 5.1 percent. Output in vehicle manufacturing was down for the fourth consecutive year, sliding down 6.3 percent in 2021. Production also declined in the food and drinks industry, but just by a slim 0.2 percent. Only the pharmaceutical industry, the chemical industry and the electrical and electronics industry had managed to exceed pre-pandemic production levels by the end of 2021. Germany: Industrial production*, Purchasing Managers Index 70

30

65

20

60 10

55 50

0

45

-10

40 -20

35 30

-30 2018

2019 Industrial production (right axis)

2020

2021

2022

Purchasing Managers Index, seasonally adjusted (left axis)

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

At the start of 2022, there were indications of an economic recovery. In the first quarter, manufacturing output increased by 0.4 percent compared to the previous quarter, with a strong performance in both January and February. With the outbreak of the war in March, production was 4.6 percent down on the previous month. This marked the fourth steepest decline experienced by Germany since Reunification, with larger decreases only recorded during the financial crisis and at the start of the Covid pandemic. The manufacturing purchasing managers’ index has dropped by more than five index points since the start of the year. In April, it reached its lowest point in 20 months, sliding down to 54.6 points. The insecurity on account of the war, supply shortages and rising commodity prices are likely to put manufacturing activity under much pressure in the further course of the year. Based on individual industry assessments, we expect production for 2022 overall to increase by around two percent.

France After rising in the first quarter 2021, France’s industry (industrial production excluding construction) stalled in the further course of the year. Production decreased slightly over the next two quarters compared to the previous quarter, before coming to a halt in the final quarter of the year. Following a drop in industrial production of more than ten percent in 2020 due to the pandemic, production increased in 2021 overall by 6.9 percent. Output in the manufacturing sector grew by a somewhat lower 5.9 percent.

France: Industrial production*, Purchasing Managers Index 60

35 25 15

50 5 -5 40 -15 -25 30

-35 2018 2019 Industrial production (right axis)

2020 2021 2022 Purchasing Managers Index, seasonally adjusted left axis)

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

Among the individual industries, output in machinery manufacturing and metal processing recorded double-digit growth of 12.3 percent and 11.7 percent respectively. Machinery manufacturers had regained their pre-pandemic production levels by the end of 2021. Performance in the chemical industry was divided. The production of pharmaceutical products grew by a meagre one percent, production in the remaining chemical industry increased by six percent. Output in the electrical and electronics industry was 8.3 percent higher than one year ago. French vehicle manufacturers recorded

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

an increase in production of 2.6 percent but were still one quarter below pre-pandemic levels, in contrast to the country’s machinery manufacturers. Output in the food industry increased by 2.7 percent year on year. At the start of 2022, the recovery in manufacturing continued with output increasing by 1.2 percent in the first quarter compared to the previous quarter. Industrial activity increased in all industries apart from in vehicle production and the chemical industry where output was lower than in the fourth quarter 2021 in both cases. The manufacturing purchasing managers’ index indicated expansion with values of 54.7 in March and 55.7 in April. If the production levels recorded in the last three months are maintained, production should increase by 1.5 percent in the year overall.

Italy In Italy, industrial production (excluding construction) started out 2021 with a robust rise of 2.4 percent compared to the fourth quarter 2020. Activity levels then increased by 0.9 percent in both the second and the third quarter before falling down to 0.3 percent in the fourth quarter. In 2021 overall, industrial production grew by a total of 11.7 percent. Industrial production levels have been higher than before the pandemic since the second and third quarter 2021. The manufacturing sector expanded even more, growing by 12.8 percent.

Italy: Industrial production*, Purchasing Managers Index 70

70 50

60

30 50 10 40 -10 30

-30

20

-50 2018

2019

Industrial production (right axis)

2020

2021

2022

Purchasing Managers Index, seasonally adjusted (left axis)

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

Among the individual industries in the manufacturing sector, vehicle production recorded the steepest rise, growing by 18.8 percent. The metalworking industry and the electrical and electronics industry were the second and third top performers with growth of 17.4 and 16.6 percent respectively. A doubledigit increase in production levels was also posted by the producers of rubber and plastics (up 15.7 percent) and machinery manufacturing (up 14.8 percent). The chemical industry expanded production by a 4.4 percent overall, with the output of pharmaceutical products increasing by only 0.5 percent while basic chemical output increased 7.8 percent. Output in the food industry grew by

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

6.1 percent. With the exception of vehicle production, pharmaceuticals and food, production across all other industries had climbed above pre-pandemic levels by the end of 2021. The latest available figures indicate a slowdown in economic recovery. In the first quarter, manufacturing output fell by 0.8 percent compared to the fourth quarter 2021. Machinery manufacturing and the food and metalworking industries curbed production for the second consecutive quarter. The manufacturing purchasing managers’ index has dropped continuously since its interim high in November 2021 but was still in expansionary territory in April. In view of the steady downward trend exhibited since autumn 2021, we do not expect production to increase in 2022 overall. Spain In Spain, industrial activity (industrial production excluding construction) increased slightly at the start of 2021 compared to the previous quarter. The upward trend faltered in the second and third quarter with industrial production decreasing slightly quarter on quarter in both. In the fourth quarter, industrial production turned around and grew by a respectable 2.7 percent. In 2021 overall, production increased 7.5 percent. The manufacturing sector performed even better, expanding by 8.1 percent. Among the individual manufacturing industries, Spain’s machinery manufacturers posted the highest growth at 15.3 percent. Double-digit growth was also recorded by metalworking companies (up 10.2 percent). The electrical and electronics industry increased its output by 6.6 percent. The chemical industry increased its production by six percent year on year. Basic chemicals grew by 6.4 percent, marginally outperforming pharmaceuticals, which increased by 5.3 percent. Spain’s vehicle manufacturing sector is also suffering and failed to find a foothold, contracting another 1.9 percent compared to the previous year. Output here at the end of 2021 was still one fifth down on its pre-pandemic level. Among Spain’s key industries, only the chemical industry (including pharmaceuticals), the food industry and machinery manufacturing have so far managed to bring production levels up to and above their pre-pandemic levels.

Spain: Industrial production*, Purchasing Managers Index 65

40 30

55

20 10

45 0 -10

35

-20 25

-30 2018

2019

Industrial production (right axis)

2020

2021

2022

Purchasing Managers Index, seasonally adjusted (left axis)

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

The latest available figures indicate that the economic upturn has lost steam. The most recent figures show a decrease in production of 0.3 percent in the first quarter 2022 compared to the previous quarter and following seasonal and calendar adjustment, but no decrease year on year. The purchasing managers’ index for manufacturing has lost three points in both of the last two months but, at 53.3 points, is still above the expansion threshold of 50 points. We do not expect a significant increase in production. If the manufacturing sector in Spain manages to retain its current production levels, an increase of 1.5 percent for the year overall compared to the previous year is still within reach.

Global trade Global trade has turned around following the slump induced by the pandemic in 2020. According to the Netherlands Bureau for Economic Policy Analysis (CPB), the global trade volume in 2021 increased by 10.3 percent compared to the previous year, after decreasing by 5.2 percent in 2020 and by 0.4 percent in 2019. Trade activity expanded in the first six months of 2021 before stalling in the third quarter. The trend turned up again in the fourth quarter, with global trade growing by 2.7 percent compared to the previous quarter. In 2021, emerging countries exported a total of 11.8 percent more goods than in the year previously. China recorded the biggest growth in exports, growing by 20.3 percent, followed by other Asian emerging countries, which posted growth in exports of 16.2 percent. Latin America increased its exports by 5.7 percent year on year. Exports from Africa and the Middle East and from Central and Eastern Europe tread water with growth of only 1.7 percent and 1.5 percent respectively.

World: Exports according to region of origin 30 25 20 15 10 5 0 -5 -10 -15

advanced economies emerging economies

-20 2018 2019 2020 2021 Index: two-month average, after calendar and seasonal adjustments, in percent, year on year

2022

Source: Macrobond

Exports from developed economies expanded by 8.9 percent overall in 2021. The biggest momentum in this group of countries also came from Asia. Japan registered 11.8 percent growth in the export of goods and the other developed Asian economies 11.6 percent. The euro area exported 8.8 percent more goods than one year previously and the United States 8.2 percent more. Although relatively pronounced, the rise was not sufficient to compensate for the decreases from the two preceding years.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

The export of goods from the euro area was 0.6 percent lower than in 2018, and from the United States 4.1 percent lower. The United Kingdom registered its third consecutive year of declining exports in 2021, with exports sliding another 1.4 percent down to just over one fifth less than in 2018. Exports from the other developed economies increased by a robust 7.7 percent, more than compensating for the loss from the preceding year. The latest figures show trade activity picking up. In the first quarter 2022, global exports increased 3.5 percent compared to the same period last year. Exports from developed countries increased 2.1 percent in the first quarter, clearly outperformed by exports from emerging countries which grew 6.2 percent. The BDI expects the global trade volume to increase by five percent in 2022 overall.

Development of German exports In the first quarter 2021, German exports grew by 2.4 percent year on year. The main factor driving growth was trade with China and EU member states. A broad recovery started in the second quarter on account of the low base level. In the second half of the year, exports continued to show double-digit growth but not as broadly as before. Exports to China stalled and exports to the United Kingdom decreased for two consecutive quarters. In 2021 overall, exports increased by 14 percent compared to the previous year. In terms of destinations, German exports to the United States expanded the most, growing by 17.9 percent. Exports to the European Union also posted steep growth of 17.5 percent. German exports to China grew by a more moderate 8.2 percent, mainly on the back of the rapid recovery of the Chinese economy and the corresponding low base level. Exports to the United Kingdom decreased for the sixth year in a row, going down 2.6 percent in 2021. Exports to the remaining countries rose by 10.7 percent year on year.

50

Germany: Exports according to region of destination

40 30 20 10 0 -10 -20 -30

remaining countries Asia USA non Euro area Euro area

-40 2018

2019

2020

2021

2022

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

In the first quarter of the current year, exports increased by 11.3 percent compared to the first quarter last year. Exports to the United States posted the highest growth, expanding by 18.6 percent. Robust growth was also seen in exports to EU countries, which grew by 11.6 percent and in exports to the United Kingdom, which increased 9.2 percent. Exports to China also regained their footing (up five percent). Exports to other countries expanded by a total of 10.3 percent compared to one year ago. In 2022 overall, we expect exports to increase by 2.5 percent. The zero-Covid strategy of the Chinese government has disrupted the supply and value chains of German industry. Additional factors burdening industry are the sharp increases in prices for non-energy commodities and fossil fuels only part of which can be passed onto consumers, and which are increasingly developing into a competitive disadvantage. A further source of insecurity is the possibility of a gas embargo.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Industries in Germany Automotive industry: supply bottlenecks constrain production despite full order books Production In the last two years, the automotive industry has suffered greatly from external shocks. After the production shutdown in April 2020 on account of the Covid epidemic, the industry was hit by a shortage in semiconductors which is still severely limiting production volumes. In 2019, the German automotive industry produced 4.66 million passenger cars. Last year, production was down to only 3.1 million. The situation will take a long time to ease on account of the long lead times in this sector. Chips are likely to remain scarce next year as well. The Ukraine war has caused a temporary shortage in wire harnesses, a proportion of which are produced in western Ukraine, which has thus restrained production in Germany this spring. The situation has now eased with production resuming and other locations scaling production up. In the first four months of the year, domestic production dropped by twelve percent, down to 1.08 million passenger cars. For the rest of the year, we still anticipate a pick-up in production. The main reason for this optimism is the order backlog in Germany which is at a record high and still rising and could keep production going for several months without a single new order. Demand for power electronics has increased along with the acceleration of electromobility which continued apace last year. In Germany, the production of electric passenger cars surged 44 percent last year to reach 618,800 vehicles. Production numbers would be even higher this year if the supply chains were in better shape. In April, 22.6 percent of all passenger cars produced in Germany were equipped with an electric motor. The lion’s share of these cars, 15.6 percentage points, were battery electric vehicles. Plug-in hybrids accounted for 6.9 percentage points. The downward trend in workforce numbers has slowed down somewhat. In March 2021, the automotive industry employed around 30,000 less employees than one year earlier, whereas in March 2022 the workforce totalled 771,700 employees, which corresponds to a decrease of only 18,000. Carmakers managed to hold their workforce almost steady, losing only 0.3 percent, with component suppliers accounting for the bulk of the decrease in employees (down 6.4 percent to 274,800 employees). Component suppliers are particularly affected by the transformation towards electromobility. Producers of trailers and bodies increased their workforce (up six percent to 39,900 employees). Exports Exports were slightly weaker than production in the first four months of the year on account of the contracting European market and the lockdown in China. The proportion of exports dropped by four and a half percentage points to 72.9 percent, and total exports by 17 percent down to 789,400. The United Kingdom remained the biggest market for German car exports accounting for 103,900 cars (down ten percent), followed by the United States, which received 99,500 German cars (down 13 percent) and China which received 88,700 passenger cars (down 20 percent).

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Construction industry stuck between high backlog of orders and material shortages The construction industry got off to a good start in 2022. In 2021, incoming orders rose by 9.4 percent in nominal terms and 2.3 percent in real terms. The volume of orders in hand at the turn of the year stood at 64 billion euros, its highest value ever. Business sentiment in mainstream construction industry in December 2021 was a good eight points higher than one year previously. On the demand side, construction activity was on firm ground. The war in Ukraine has completely changed this situation and has had a manifold impact on construction production in Germany. A third of construction companies surveyed procure their building materials from Russia, Belarus or Ukraine. Nine out of ten companies reported that the war has had a direct or indirect negative impact on their business operations, mainly in the form of shortages and sharp price increases in a range of building materials and the steep rise in energy prices. Three out of four companies reported delays in their current construction projects, with a third facing cancellations. In the ifo survey of April 2022, every second construction company said material shortages were curbing their production levels. Before the outbreak of the Ukraine war, this only affected 21 percent of companies in the industry. The situation is compounded by homemade problems such as the abrupt termination of the funding for new energy-efficient housebuilding followed by a temporary reintroduction of the scheme with a lower budget which was used up within four hours. This environment does not quite produce the longterm reliability that investors like to see and is especially problematic given the increasingly stringent requirements for climate-friendly construction. In the current year, the construction industry will be facing problems above all in public construction as it is trapped between budget restrictions and rising construction prices. All public budgets only have a certain sum budgeted for investments, including construction measures. As a consequence, the current substantial rise in costs of tendered construction projects will be carried out at the cost of other measures which were initially also planned. The price increases will also mean that the nominal increases in investment planned, on the federal level for example, will actually result in a decrease in real terms. The construction industry has therefore downwardly revised its forecast from the turn of the year for construction sales in mainstream construction in real terms in 2022, from growth of 1.5 percent to between stagnation and a decrease of two percent. The workforce of the industry is expected to continue growing nonetheless, to replace older employees scheduled to retire in the next few years. In the current year, the number of employees working in mainstream construction should average out at 920,000 employees.

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

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Building materials industry: production-side risks substantially increased The favourable starting position of the building materials industry at the start of 2022 has deteriorated markedly since the beginning of the war in Ukraine and the resulting economic impact. Energy supply security and the steep rise in energy prices represent the main production-side risks, along with the supply of intermediates such as structural steel. This has also jeopardised the supply chains of the construction industry. There are also risks on the demand side, including the decreasing propensity of private investors to invest on account of the crisis, and deteriorating financing conditions. Construction prices are also likely to continue rising in view of the current shortages and rising energy and commodity prices, which will also keep a lid on demand. Prospects have clouded over in all segments of the construction industry and also regarding the industrial demand for building materials. The factors specified above have led to a substantial deterioration of the business prospects of the building materials industry. Expectations according to the ifo business climate survey for the area of glass, ceramics, stone and earth elements dropped 30 points between February and May and, at minus 41 points, is well into pessimistic territory. The companies’ assessment of their current situation has also deteriorated but, at plus 38 points, is still very positive. The figures on the production of building materials, which are available up to and including March, are still on a high level despite the slump in business sentiment. Although production in March 2022 was down by 3.9 percent in real terms compared to the same month last year, the mild weather at the beginning of the year meant production was brought forward in some cases. In the first quarter, production increased by 5.8 percent overall in real terms. This upward trend prevailed across almost all segments of the building materials industry. In the further course of the year the German Building Materials Association (bbs) anticipates a slowdown in production activity. All in all, building materials production in 2022 is likely to come in at roughly the same level as last year although this forecast is based on several uncertainties.

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

Chemical industry: dark clouds in the sky for chemicals The German chemical and pharmaceutical industry recorded a satisfactory performance in the first quarter 2022 despite difficult circumstances. Both domestic and foreign sales increased steeply (up 7.8 percent quarter on quarter). Demand for chemical goods was robust both at home and abroad with nicely filled order books. The increase in sales is largely due to the hefty rise in producer prices (up 6.7 percent quarter on quarter). The chemical industry is already feeling the pinch. The production of chemicals (excluding pharmaceuticals) was down on the previous quarter and on the same quarter last year. Capacity utilisation decreased with the latest figures below the long-term average. Fine and speciality chemicals suffered particularly from the material shortages, logistics problems and soaring energy and commodity prices, with production and sales dropping quarter on quarter in the first quarter of the year. The reach of orders in hand for the industry has shrunk according to the latest figures, with declining industrial

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

production also curbing the demand for chemicals. Companies’ assessment of the current business situation has deteriorated. Outlook: industry has yet to bottom out Sentiment has clouded over particularly regarding expectations. Since the outbreak of the war in Ukraine, many companies have been bracing for recession. Problems on the supply side are still getting worse. Energy and commodity prices remain on a high level and are proving to be extremely volatile. Bottlenecks among intermediates have continued to intensify, not only in the chemical industry but also among its key customers. Logistic problems are mounting up on account of the war in Europe and the recent lockdown in China. In the months ahead, the majority of companies in the industry expect a downturn. The industrial customers of chemicals are keeping production levels down, above all in Germany and Europe, which, in turn, reduces the demand for chemicals. It remains uncertain whether prospects will brighten towards the end of the year. Companies are particularly concerned about the supply security of oil and gas and the further developments in China. For the year overall, production is very unlikely to match last year’s level. A cut in the supply of gas would be disastrous for the chemical industry and the industrial sector overall.

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

German electro and digital industry: solid start to the year Following a turndown in 2020, the first year of the pandemic, the German electro and digital industry posted robust growth last year. Production increased by nine percent following price adjustment. Growth in nominal sales was even in the double digits, up 10.2 percent year on year. The dynamic growth in 2021 not only compensated for the losses from 2020 but also from 2019, the year marked by industrial recession. Sales for the industry, at 200.4 billion euros, topped the 200 billion euro mark for the first time ever. Incoming orders surged 23.8 percent in 2021, giving the German electro and digital industry a comfortable cushion of orders on their books to start off the new year. The greatly deteriorated macroeconomic environment has so far hardly affected the performance of the industry. With increases in production and sales in the first quarter 2022 of 2.9 percent and 10.3 percent respectively year on year, the electro and digital industry was in good form. Incoming orders registered growth of 14.6 percent in the first quarter, bringing up the reach of orders in hand to a record high of 5.7 production months. Supply chains are still very strained with 89 percent of companies in the electro and digital industry reporting material shortages at the start of the second quarter 2022, which is the highest proportion recorded in this industry since the start of this data series in 1991. The number of employees in the German electro and digital industry was at 879,000 according to the latest figures, which is 1.9 percent more than one year ago. The proportion of the workforce on shorttime work was at just over one percent, in contrast to well over twenty percent in spring 2020.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

The business climate in the industry has deteriorated since the start of the war in Ukraine with expectations in negative territory since March. Companies are still positive about their current business, although this component was down on the previous month in May for the first time since the start of the war. The German Electro and Digital Industry Association (ZVEI) is nonetheless still currently forecasting growth in price-adjusted production for the industry of four percent in 2022. The order backlog is high and the good performance in the first quarter are positives while the general economic environment is increasing precarious. Electro and digital exports also still pointing up In 2021, German electro and digital exports increased 10.2 percent to 224.6 billion euros, exceeding the record level to date of 2019 by ten billion euros. Exports to China, which is the most important destination of German electro and digital products, increased by 7.5 percent to 25.1 billion euros in 2021. Exports to the United States, the second biggest market for the industry, posted double digit growth with an increase of 10.2 percent to 19.1 billion euros. Exports to the euro area rose 14.6 percent to 73.4 billion euros in 2021, accounting for almost one third of total German electro exports. The industry continued its upward trend in the first quarter 2022, growing 5.1 percent compared to the same quarter last year. As exports to Russia and Ukraine only accounted for around two percent of total exports, the decrease in exports to these countries has barely affected the overall performance of the German electro and digital industry. Export expectations suffered a hefty setback at the beginning of the war in Ukraine. At plus nine percentage points in May, they are nonetheless still in positive territory.

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

Digital sector The business climate in the German digital sector improved tangibly in April thanks to the full order books of information and communications technology companies. Current business in the sector was rated more positively than it has been since May 2019. The two-year high in incoming orders also caused a robust increase in the Bitkom ifo digital index. This index visualises business sentiment in the digital sector and is composed of assessments of the current business situation and expectations for the next six months. In April, the digital index increased by 8.9 points to 26, bringing it closer to the level it was at before the outbreak of the war in Ukraine. Business prospects have also improved markedly, turning around from minus 4.1 to plus 5.5 points. This means that the majority of companies surveyed no longer expect incoming orders to trend downwards but upwards in the next six months. The Russian war of aggression and the impact of sanctions are hampering overall economic development and exacerbating the already severe disruptions in supply chains, the slowdown in growth and the rapid rise in inflation. The digital industry is coping much better with these challenges than the industrial sector overall.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

The largest obstacle for the industry remains the shortage of skilled staff. In April, the index was 5.6 points down from its level at the beginning of the year but, at 41.7 points, still at a very high level. Insufficient demand is less frequently regarded as a problem with the index dropping 2.4 points down to 19.1 points. Financing difficulties are almost irrelevant, remaining steady at the low level of 2.2 points (down 0.1 points). Information and communications technology companies are still planning on increasing their workforce. Employment expectations increased by 5.1 points to 35.3 points which is its highest level this year. This means that the overwhelming majority of companies plan to increase their staff in the next three months. The demand for skilled digital workers is high and has continued to rise. A large majority of companies expect the prices of their products and services to rise. Already on a high level, the index increased another 5.1 points to 42.7 points. The impact of the war, sanctions and rising energy prices is pressing down on sentiment across the economy. The ifo business climate index rose by a slight 2.3 points and is now in positive territory again at 0.7 points. The assessment of the current business situation remained almost steady at 21.5 points (up 0.3 points). Expectations increased by 3.9 points but, at minus 18.2 points, are still firmly within negative territory.

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

Foundry industry The mood among German foundries in spring 2022 is very tense. The balance of good and bad ratings as of May remained well inside positive territory at plus 30.6 points. Business sentiment has nonetheless cooled down significantly since Russia attacked Ukraine. Expectations for the next six months recorded their biggest drop ever, down to minus 22.2 points. The war has caused a number of difficulties for German foundries. While orders from machinery manufacturing remain on a very high level, propping up the foundries which supply them, foundries supplying the automotive industry are experiencing increasing problems. Disruptions to supply chains in the largest group of customers of cast components means that purchase orders have not been activated and the latest figures show a clear decline in orders. On the other side, exploding procurement costs and drastically increasing energy prices weigh heavily on the energy-intensive foundry industry. The steep increase in the prices of many energy and nonenergy commodities in the second half of last year already placed severe strain on foundries and this situation has got a lot worse since the start of the war. A possible shortage of gas is currently a big risk for German foundries. All foundries in Germany, irrespective of the materials they use, are dependent on gas in their production. Many companies need gas for their melting process for technical reasons and gas is also used in the preparatory and finishing processes of foundries and cannot be substituted. The consequences of a reduced availability of gas are difficult to quantify as the complex foundry processes are not readily interrupted and restarted. A

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

shortage of gas certainly poses an existential risk for the industry and many foundries are already struggling on account of the heavily increased energy costs. The invasion of Russia in Ukraine and the sanctions imposed in response have also affected the availability and costs of metals. The biggest problems are the procurement of nickel, although pig iron, scrap and aluminium are also under pressure. Production planning for foundries is very difficult in this highly unpredictable environment and subject to a high degree of uncertainty. In the first quarter, total production of cast components dropped 1.7 percent year on year. While iron and steel foundries reported production levels steady with those of last year, nonferrous metal foundries posted a drop of 8.3 percent in production. Compared to the same period in 2019, production in both groups of foundries was still down by around 23 percent. Following the slump in revenue of around 21 percent across the industry in 2020, foundries finished off 2021 with revenue growth of 17 percent. Fuelled by the high commodity and energy prices, sales in the first quarter increased 15.8 percent compared to the first quarter 2021. The 600-odd companies operating in the industry currently employ around 66,000 workers, according to the German Foundry Association (BDG).

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

Ceramics industry The fine ceramics industry was badly hit by the pandemic but was able to recover on the whole in 2021. The industry got off to a good start in 2022. Dinnerware and manufactories posted a growth in sales in 2021 but were unable to compensate for the setback in 2020. Project business posted a strong performance at the start of 2022 with rising private consumption additionally boosting the positive trend in incoming orders and sales, which increased by 37 percent in the first quarter 2022 year on year. Technical ceramics also increased total revenue by around 20 percent in the first quarter 2022 compared to the first quarter 2021, bringing it back up to its pre-pandemic level. The situation among automotive component suppliers could have a negative impact on sales in some areas. Sanitary ceramics remained largely unaffected by the pandemic with a good level of orders in 2020 and in 2021. The tile industry managed to continue its upward trajectory of 2020 into 2021, with a high level of growth which continued into the first quarter of 2022 at more or less the same level. All in all, the ceramics industry recorded rising incoming orders in the first quarter 2022, continuing its recovery from the crisis year of 2020. The current volatile situation caused by the attack of Putin on Ukraine, sanctions and the current logistics problems in Chinese ports and elsewhere may well put an end to the current upwind in the industry. The upward trend among private consumers could well flatten out in the autumn months and possible new developments in the pandemic could deflate project business for dinnerware in particular. Growth is thus expected to slow down in the upcoming months.

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

Furthermore, the energy-intensive ceramics industry is greatly affected by the rising gas prices which will also lead to competitive disadvantages. Furthermore, 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 foundries.

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

Aviation In the first quarter 2022, air travel was still hampered by the Covid pandemic. German airports recorded passenger demand of around 22 million passengers in the first three months of the year. That was more than three times as many as in the first quarter 2021 but still less than half the passenger numbers before the pandemic in 2019 (43 percent). The impact of the Ukraine war is marginal. The proportion of passengers between Germany and Ukraine, Russia and Belarus only amounted to 2.5 percent of all passengers within and to or from Germany even before the crisis. Demand for air travel in Europe and in Germany is bouncing back overall. However, compared to a selection of the largest aviation markets in Europe and the neighbouring countries of Germany (Norway, Sweden, Denmark, the Netherlands, Belgium, France, Spain, Portugal, Switzerland, Italy, Austria, Greece, Poland, the United Kingdom, Turkey), Germany was ranked 15th with a recovery rate of 78 percent. Only Sweden was lower, with a recovery rate of 76 percent. In many other countries the crisis in demand induced by the pandemic is over, with Greece at 105 percent, Portugal 99 percent, Turkey 97 percent, Spain 93 percent, the Netherlands 91 percent and Italy at 90 percent. Demand in Germany is not returning with much force, particularly in domestic air travel. While domestic air travel has recovered in the other large European markets (Italy at 103 percent of 2019, France 88 percent and Spain 97 percent), in Germany only 56 percent of domestic flights will be available over summer 2022. Market participants have reacted differently. While German airlines have reported a recovery of 80 percent of flights overall, taking them to seven percentage points below the development across Europe excluding Germany (EMU, UK, Switzerland), many international airlines favour the recovery and growth levels in other European markets. International point-to-point companies in Europe excluding Germany grew by ten percent compared to 2019, while in Germany the number of flights was at 37 percent below pre-pandemic levels. The same is true, though less pronounced, in the case of the large groups AFKL, IAG and particularly the U.S. airlines. The international tourist airlines are growing more strongly in Germany than in the rest of Europe. There are several reasons for this development. Germany kept the measures imposed to stop the spread of Covid in place for a long time and the German population has been much more critical about the termination of these measures than the general public in comparable markets. Business travel, which was thought to be in general demise during the pandemic, is also recovering although not as strongly as private travel. As business travel is an important section of the German market, this has

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

affected overall demand considerably. Furthermore, due to the development of the pandemic in Germany and the long retention of protection measures, many of the large trade fairs and events which are an important component of air travel demand did not take place. Domestic German travel was also affected by additional factors such as the market exit of one airline which has led to higher prices and lower frequencies on key routes. During the pandemic, passenger car travel became the transport means of choice particularly since the advantage in terms of time has dwindled due to the lower number of flights available. The location of the new airport in Berlin means that flying takes relatively longer than from Tegel Airport, thus reducing the advantage of flying over travelling by train or car in terms of time. The problems on individual peak days in the area of security controls and ground handling at the new airport are broadly covered in the media, increasing the appeal of car, bus and train travel in the eyes of the customers (particularly car travel). The retention of the obligation to wear a mask is another factor fuelling this development. Other possible reasons such as trends in purchasing power and overall economic development and the impact of the war in Ukraine have a similar effect on the other countries in Europe and cannot explain the divergent development. The strong growth momentum in air freight transport has tailed off. In the first quarter, air freight loaded and unloaded was 0.7 percent above the 2021 level and 8.4 percent higher than in the same period in 2019, but figures for March 2022 were down on March 2021. The slowdown of the global economy, inflation and increasing supply chain problems are also putting the lid on air freight demand. Logistics to Asia for German and European companies in particular is characterised by an increased use of capacities due to the longer routes, additional costs and lower returns. Profits are still good on account of the low capacities on the market. In sum, the trend in passenger air travel in Germany needs to be observed closely as it may well simply be lagging behind other countries and will soon catch up. Air freight transport has reached relative saturation, with moderate levels of economic growth particularly in Asia having a tangible effect. The listed corporations Lufthansa Group and Fraport have nonetheless adapted well to the developments and are optimistic about the further course of the year.

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

Machinery manufacturing Production Sentiment in companies has stabilised somewhat following the slump in March, according to the latest figures. Companies view their current business situation as positive buoyed by order books at a record high level with an average reach of over eleven months. Persisting material shortages mean that companies cannot work off their orders as usual. Hardest to come by are electronics components and fabricated metal products. As of early April, 84 percent of companies reported noticeable or severe shortages in the supply of electronic components and 69 percent reported shortages in the supply of metals and fabricated metal products. According to preliminary Federal Statistical Office figures, production in March was down by 4.1 percent in real terms. The persistent shortages in supplies mean that many companies now have a much higher stock of unfinished end products in their production cycle. What’s more, there are not only shortages in materials but also in transport capacities. On top of a shortage of containers, packaging material, pallets and, on account of staff off with Covid, workers

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

to load and distribute the goods are all in short supply. One-off factors such as China’s zero-Covid strategy and the hostilities in Ukraine are compounding the situation. Incoming orders have continued to point down, according to the latest figures, and showed negative growth in March year on year for the first time since January 2021. Capacity utilisation dropped down to 87.3 percent in April but is still just over its long-term average. Companies have been facing enormous cost pressure for several months. The trend in producer prices for industrial products exemplifies the problem. According to Federal Statistical Office figures, these were 30.9 percent higher in March than one year previously. An increase of this magnitude has never yet been recorded since the data series began in 1949. Despite all these turbulences, the situation on the labour market is still favourable with companies reporting the need for more staff. Shortages in engineers and skilled labour is dampening the euphoria here slightly. Outlook Many companies regard their business expectations as poor. The persisting hostilities in Ukraine are causing uncertainty and tangibly curbing investment propensity. The war and the strained situation in China will stand in the way of any easing up of supply chains. On the contrary, most machinery manufacturers expect the situation to get worse in the next few months before a potential easing towards the end of the year. In the case of electronic components, many companies do not expect supplies to improve before the beginning of next year. With this in mind, many manufacturers have reviewed their supply chains closely aiming for broader supplier networks, regional diversification and higher inventories to increase supply security. The dependency of industry on Russian gas is jeopardising economic growth like a sword of Damocles. On account of the substantially dampened prospects, the German Mechanical Engineering Industry Association’s (VDMA) has downwardly adjusted its production forecast to plus one percent in real terms. The labour market is the only ray of light. Despite the difficult environment, 89 percent of personnel managers in mechanical and plant engineering plan to take on more staff in the next six months. The large majority of these companies regards an increase in their workforce of up to five percent as realistic.

Contact: Florian Scholl / Phone: +49 69 6603 1474 / Mail: Florian.Scholl@vdma.org

Nonferrous metal industry The German nonferrous metal industry is worried about the second half of 2022. The main concern of companies in the industry is that shortages in materials will keep getting worse and a continuing increase in energy prices. Incoming orders are still robust in almost all segments. In 2021, the industry produced 7.1 million tonnes (up six percent year on year) and a revenue of 66 billion euros with a combined workforce of 105,000 employees and 625 companies. Domestic sales accounted for 53 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. In 2021, the aluminium industry produced around 1.1 million tonnes of raw aluminium, almost as much as in the previous year. The semi-finished aluminium product industry recorded an increase in production of twelve percent, going up to 2.7 million tonnes. Production in the aluminium further processing segment expanded by one percent to

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

327,000 tonnes. The copper industry saw production grow to 1.5 million tonnes in 2021, which represents an increase of six percent compared to the weak performance in 2020. The biggest segment here, semi-finished products of copper and copper alloys, displayed dynamic growth of twelve percent in 2021 compared to 2020, with production up to 849,000 tonnes. The manufacturers of lead, zinc, nickel, tin and other nonferrous metals produced 673,000 tonnes in 2021, which is four percent less than in 2020. The nonferrous metal foundry industry produced 806,000 tonnes of cast parts in 2021, five percent more than in 2020. Higher energy prices and a limited availability of commodities will definitely have an impact on production in the upcoming months. Germany net exporter of semi-finished products and net importer of crude metal The foreign revenue of the nonferrous metal industry in 2021 amounted to 31 billion euros. This corresponds to a slight decrease in the export quota to 47 percent. Germany is a net exporter of semifinished products. The export-oriented semi-finished products industry profited from increased foreign demand of five percent up to 2.5 million tonnes. Imports stood at 2.2 million tonnes, which represents a 15 percent increase on the previous year. On the other hand, Germany is a net importer not only of ores and concentrates but also of crude metal. This means that the country imports substantially 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 2021, imports of raw metal increased by ten percent compared to the previous year, going up to 3.6 million tonnes. Exports of raw metal recorded robust growth of six percent to one million tonnes. Russia is an important supplier of nonferrous metal commodities for the German nonferrous metal industry, particularly nickel, aluminium and copper. Some imports from Russia cannot be replaced by other markets in the short term. Companies in the industry have already turned down orders because of the lack of planning reliability regarding the supply of Russian commodities. The entire industry is deeply concerned about the ongoing migration of these orders to Asian competitors, for example.

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

Steel and metal processing: first quarter production 1.8 percent down year on year The production of steel and metal processing companies in Germany in the first quarter of the year was 1.8 percent down year on year. Compared to the previous quarter, however, production was up by 5.4 percent marking an end to the recession (both the third and fourth quarter of 2021 were negative quarter on quarter). This was further substantiated by an increase in production of 5.6 percent in March, the month the war started, over February. This confirms that the start of the conflict in the Ukraine will at most have a low direct impact on activity in the industry. With the spiral of sanctions that has since set in, the risks of a significant impact have increased. A disruption in the supply of gas from Russia in particular would have a massive impact on the companies in this industry as well as upstream and downstream supply chains. After an initial shock in response to the Russian invasion of Ukraine, the business climate among steel and metal processing companies in Germany settled down a little in April. While the escalation in hostilities do not appear to have had a tangible effect on the companies’ assessment of the current business situation, companies are 9.8 index points less sceptical regarding the next six months. The prevailing mood is still pessimistic, with downwardly adjusted forecasts from the automotive industry

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

and machinery manufacturing not providing grounds for optimism. Supply shortages in semiconductors are now expected to persist over and beyond the end of the year. Further shortages of nickel, palladium and neon as well as logistics problems are exacerbating the situation. This will curb growth in the supplier industries of steel and metal processing. The production forecast for 2022 has thus been reduced from seven percent down to five percent. The economic upturn is overshadowed by the challenges facing the industry. The Ukraine war has triggered a further escalation in prices, particularly for energy, which are proving too much for companies to cope with. The federal government has responded with a package of measures to cushion the impact of the most extreme price peaks on spot markets at least. The package will not provide relief across the board due to the high obstacles which are above and beyond the scale stipulated by the European Commission. A possible gas embargo would cause a further substantial increase in prices and paralyse industrial production even factoring in remaining natural gas supplies, particularly as the federal government is planning to give gas suppliers the legal right to pass on price increases along the supply chain.

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

Textile and clothing industry Following two years impacted by Covid, the German textile and clothing industry was back to prepandemic levels across all key economic indicators in February 2022. Sales were back to 2019 levels following an annual increase in 2021 of 5.5 percent and a very good start to 2022 with first quarter growth of 21 percent and exports already higher than before the pandemic. Overall, the clothing sector only started out 2022 with an increase in sales of three percent in 2021 (textiles up 6.9 percent). However, short-term export and sales expectations improved significantly more for clothing than for textiles, where many suppliers in other industries are badly affected by supply chain disruptions. The number of people working in the industry shrank by around eleven percent during the crisis. Commodity prices have been and continue to be an increasing problem for the industry. The prices of all key commodities of the textile and clothing industry have surged over the past two years, affecting both synthetic and natural fibres such as cotton. Energy-intensive products such as nylon and its intermediates are particularly affected by price increases, especially given the sharply increasing energy prices. While products are cheaper on the whole in Asia, particularly because energy prices here have not risen that much, the logistics crisis represents a further problem for German companies. Container shipping rates from the Far East have multiplied about tenfold in the last two years. The situation is compounded by supply delays and cancellations. Just over 90 percent of clothing companies and just over 60 percent of textile companies are struggling with material shortages. All companies are affected by the hike in prices. Roughly 60 percent of companies in the industry expect to be able to pass on a maximum of one quarter of the price increases to customers. Producer prices increased more than usual for the industry. In the first three months of the year producer prices for clothing were 2.6 percent higher and for textiles 8.2 percent higher. The outbreak of the Ukraine war has placed additional pressure on the industry. The direct impact of the war on companies in the textile and clothing industry is low. Although over 50 percent have

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Industry Report | Industrial production and trade in the individual industries 13/06/2022

business operations in Russia or Ukraine, sales in these markets account for under ten percent. Less than five percent have their own business location there. Companies in the textile and clothing industry were divided regarding their short-term expectations. The clothing industry was surprisingly positive about its prospects for the next six months despite the war, while textile producers have become distinctly less positive. The order books are very strong in the clothing industry, particularly from abroad and specifically from outside of Europe. In textiles, the order books are not in such good shape due to the segment’s close interconnectedness with other industries.

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

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