Industry Report 11/2023

November 2023 INDUSTRIAL POLICY DOSSIER

Industry Report Industrial production and trade in the individual industries

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German Manufacturing output set to stagnate this year overall. Order backlogs are diminishing steadily. Industrial production is slowly dropping off. Based on the course of the year so far, the one percent growth in output expected in spring is now out of reach.

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Industrial production downward in the European Union this year.

Upward trends in vehicle production and pharmaceuticals not enough to compensate sharp falls in production among energy-intensive industries and the electro industry.

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We expect German goods exports to drop two percent in nominal terms (2022: up 15.6 percent). Weak trade with China and decreasing exports within the EU pulled down goods exports despite buoyant trade with third countries.

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Global trade in goods on track to drop by one percent in 2023. Goods exports from advanced countries are heading to fall by more than 1.5 percent while goods exports from emerging countries should manage an increase of 0.5 percentage points.

Industry Report | Industrial production and trade in the individual industries 29/11/2023

Content Not much growth ahead for global industrial production ............................................................... 3 Advanced economies: only US economy contributing to growth .......................................................... 3 Emerging countries: China back driving growth while Central and Eastern Europe countries rebound4 United States: mixed signals towards year end .................................................................................... 5 China back to growth ............................................................................................................................. 6 Japan: industrial production sideways for the last three years ............................................................. 7 South Korea: weak start to year but set to recover ............................................................................... 8 United Kingdom: recovery sets in late ................................................................................................... 9 European Union: vehicle production recovers but big losses for energy-intensive industries ............ 10 Germany: stagnant production despite easing supply shortages ....................................................... 11 France: stable sideways movement but still below pre-pandemic levels ............................................ 12 Italy: production above pre-pandemic level since summer ................................................................. 13 Spain: production falls below Covid year levels once again ............................................................... 14 Global trade ......................................................................................................................................... 15 Development of German exports ........................................................................................................ 16 Automotive industry: production continues to recover ........................................................................ 18 Construction industry: 2023 and 2024 set to be difficult ..................................................................... 19 Building materials industry: construction crisis triggers slump in production ...................................... 20 The chemical and pharmaceutical industry: hopes are on for 2024 ................................................... 20 German electro and digital industry again heading for annual growth ................................................ 21 Digital industry ..................................................................................................................................... 22 Foundry industry: frosty autumn 2023 ................................................................................................. 23 Glass industry: downward trend but ray of light on horizon ................................................................ 24 Ceramics industry ................................................................................................................................ 24 Aviation ................................................................................................................................................ 25 Machinery manufacturing: caught in a web of challenges .................................................................. 26 Nonferrous metal industry ................................................................................................................... 27 Foreign trade slumps ........................................................................................................................... 28 Pharmaceutical industry continues to settle down in wake of Covid pandemic .................................. 28 Steel and metal processing: production down 2.6 percent year on year after three quarters ............ 29 Textile and clothing industry: heterogeneous development, challenging outlook ............................... 30 Imprint ................................................................................................................................................ 31

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

Not much growth ahead for global industrial production Global industrial production (excluding construction) increased by a lean 0.5 percent year on year in the first quarter 2023, according to Netherlands Bureau for Economic Policy Analysis (CPB) figures.

Momentum increased somewhat in the second quarter, up to 1.5 percent, but remained far lower than in the previous two years. Stagnation then ensued for the first two months of the third quarter. As of August, global industrial production was just 0.7 percent higher than in the same period last year.

There is no real sign that industrial activity will speed up in the further course of the year. The purchasing managers’ index for manufacturing did recover somewhat in August and September, only to drop back down to its previous level in October. At 48.8 index points, the index has been in contractionary territory for just over one year now. For the year overall, global industrial production could still scrape together an increase of just over one percent as long as current output levels are maintained until the end of the year.

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 2020

2021

2022

2023

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

Advanced economies: only US economy contributing to growth In the advanced economies, industrial production dropped by one percent in the first quarter of this year compared to the previous year. The downward trend accelerated in the second quarter (down 1.1 percent) and in the first two months of the third quarter. As of August, industrial production was 1.3 percent lower year on year. The remaining advanced Asian countries recorded the steepest drop, falling ten percent, while the other advanced economies only experienced a slim decline of 0.2 percent. Among the group of advanced economies, the US industry was the only one that managed a narrow increase in output. Industrial production in Japan and in the euro area fell by 1.3 percent and 1.4 percent respectively, while the United Kingdom fared slightly better with minus 0.7 percent.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

Industrial activity is expected to continue heading downwards in the further course of the year. Although the purchasing managers’ index for manufacturing in the advanced economies rose for the second time in a row in October, at 47.5 index points, it was still well below the 50-point threshold to expansion.

Looking at the course of the year so far and the sentiment barometer at the start of the fourth quarter, we expect a moderate drop in production. This would result in a decrease in industrial output among advanced economies for 2023 overall of more than one percent.

Advanced economies: Industrial production*, Purchasing Managers Index 60

25

55

15

50 5 45 -5 40 other Advanced economies Euro area Japan USA Purchasing Managers Index seasonally adjusted (left axis)

35

30

-15

-25 2020

2021

2022

2023

*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

Emerging economies: China back driving growth while Central and Eastern Europe countries rebound In the first quarter of 2023, industrial production in emerging economies rose 1.8 percent year on year on the back of a strong performance from China and the other Asian emerging countries. With Central and Eastern Europe recovering solidly in the second quarter, industrial production in emerging countries grew by 3.3 percent overall. The upward trend continued into the first two months of the third quarter, bringing output up 2.5 percent year on year as of August 2023. China’s industry retook the lead in terms of growth, expanding 3.8 percent. Industrial production in Central and Eastern Europe posted above-average growth of 2.9 percent due to the low baseline. Output in the Asian emerging economies excluding China was slightly below average at 2.4 percent. Industrial production in Latin America tread water in the first eight months of the year, rising 0.4 percent overall.

With prices for fossil fuels ebbing off, output in Africa and the Middle East was 0.7 percent down in the same period.

After a break of one year, China’s industry is once again the strongest performer within the group of emerging economies. Its pace of growth is nonetheless still only around half as strong as on average over the last few decades. Industrial output in emerging countries is thus expected to be much lower

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

this year overall. The purchasing managers’ index for manufacturing for this group of countries dropped for the second consecutive time and was at 50.1 index points as of October 2023, only just above the 50-point threshold. In view of the course of the year so far, industrial production in emerging countries should manage to grow two percent year on year in 2023 overall even if it moves sideways in the fourth quarter.

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) 40

-10

-20 2020

2021

2022

2023

*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

United States: mixed signals towards year end US industry (industrial production excluding construction) was not able to maintain last year’s high growth this year. In the first quarter of 2023, industrial production grew a meagre 0.9 percent, half the rate seen in the final quarter of 2022. The main driver of growth was vehicle manufacturing, with pharmaceuticals also rising slightly. In the second and third quarter 2023, production levels did match last year’s growth. Overall, industrial output in the first nine months of the current year was up by 0.3 percent year on year.

In manufacturing, output dropped by 0.6 percent over the same period. Among the individual industries, output in motor vehicle manufacturing was up by 6.5 percent as of September. The segment passenger car production surged up eight percent. Chemicals only increased output by a lean 0.9 percent.

Excluding pharmaceuticals, output decreased 2.7 percent. The production of computers increased by 0.9 percent in the first nine months of the year, the production of electronic devices and equipment fell one percent. Unusually large drops in production were also recorded by machinery manufacturing, down two percent, and the food industry, down 1.7 percent.

The latest figures show momentum revving up a little. Manufacturing output increased 0.3 percent in the calendar and seasonally adjusted two-month comparison August/September 2023 compared to the previous two months. Another positive sign is the purchasing managers’ index for manufacturing which reached the threshold level to expansion of 50 index points for the first time in six months in

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

October, pointing to a slight pick-up in the fourth quarter. For 2023 overall, we are sticking to our spring forecast of stagnation for manufacturing output.

United States: Industrial production*, Purchasing Managers Index 65

20 15

60 10 55 5 50

0 -5

45 -10 40 -15 35

-20 2019

2020

Industrial production (right axis)

2021

2022

2023

Purchasing Managers Index, seasonally adjusted (left axis)

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

China back to growth China’s industry turned back to growth at the start of 2023. According to figures from the Netherlands Bureau for Economic Policy Analysis (CPB), industrial production rose 4.3 percent in the first quarter of 2023 compared to the previous quarter. Growth year on year was not quite as high at 2.4 percent.

Looking at the official Chinese figures, production was up especially for electrical devices and chemical products. Car production remained almost stagnant, while production of paper and textiles dropped. In the second quarter, industrial production was 2.6 percent down on the previous quarter but 4.8 percent higher year on year on account of the weak second quarter last year caused by the government’s zeroCovid policy. This also explains the surging output recorded by the car industry of 25 percent and the electro industry of just under one sixth. The chemical industry also posted an increase in production of around seven percent. While the paper industry and the metal processing industry expanded activities somewhat, production in the textile industry was down once again.

The latest figures show continued recovery. In the first two months of the third quarter, China’s industry increased its output by 4.4 percent year on year, and by 1.8 percent compared to May/June 2023, according to CPB figures. The chemical industry and the electro industry both posted double-digit growth. China’s machinery and vehicle makers also continued their upward path. The production of pharmaceutical products, and textiles and clothing, meanwhile, stayed downward year on year.

The purchasing managers’ index for manufacturing remained above the threshold of 50 index points indicating expansion in both August and September, before dipping to 49.5 points at the start of the fourth quarter. This is a sign that production will be weaker than it was in the second and third quarters.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

For 2023 overall, we are downwardly revising our forecast for industrial production from five percent to four percent growth.

China: Industrial production*, Purchasing Managers Index 55

40 30

50

20 10

45

0 -10

40

-20 2019

2020 Industrial production (right axis)

2021 2022 2023 Purchasing Managers Index, seasonally adjusted (left axis)

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

Japan: industrial production sideways for the last three years Japan’s industry has tread water since the end of the Covid pandemic. In the first quarter of the year, industrial production (excluding construction) decreased 1.4 percent compared to the first quarter last year. In the second quarter, output increased 1.1 percent before faltering once again in the third quarter. Overall, production in the first nine months of the current year was around two percent lower than in the previous year.

Japan: Industrial production*, Purchasing Managers Index 60

30 20

55

10 50 0 45 -10 40

-20

35

-30 2019

2020

Industrial production (right axis)

2021

2022

2023

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 29/11/2023

In the manufacturing sector, output as of September was 1.5 percent down on the same period last year. Among the individual industries, production in machinery manufacturing was particularly weak at minus 6.5 percent. The chemical industry including pharmaceuticals recorded a drop of 4.6 percent.

Chemicals alone (basic chemicals) performed considerably worse, at minus 7.6 percent. Energyintensive industries also had below-average output, with paper down 5.7 percent, ceramics down 5.9 percent, metal processing down 3.6 percent and cement down 8.2 percent. Moving the other way, the electro industry recovered from its weak performance last year, growing 9.3 percent, and vehicle manufacturers even managed a double-digit growth of 14.8 percent.

Japan’s industry lost momentum at the end of the third quarter. In the two-month comparison August/September 2023, output was 2.1 percent down on the previous two months following calendar and seasonal adjustment, fuelled primarily by low machinery and vehicle production. The purchasing managers’ index for manufacturing has dropped four times in a row since reaching its highest level this year in May, losing more than two index points in total. It nudged up slightly in October, but, at 48.7 points, is still well within contractionary territory pointing to downward production in the fourth quarter. This would result in a decrease in industrial production in 2023 overall of around two percent.

South Korea: weak start to year but set to recover South Korea’s industry (excluding construction) started out 2023 with double-digit contraction in the first quarter. The main downward factor was the electro industry, where production was down by just over one third. Output was also slightly more than one fifth lower in the chemical industry year on year.

The negative trend continued in the second quarter with production more than six percent lower than last year. While the chemical and the electro industry continued to struggle, pharmaceuticals and vehicle production stepped up activity. Metal production also joined the upward trend. In the third quarter overall, output was down by 2.3 percent year on year.

South Korea: Industrial production*, Purchasing Managers Index 60

15 11

55

7 3

50 -1 -5

45

-9 40

-13 2019

2020

2021

2022

2023

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 nine months of the current year, manufacturing output was seven percent lower than in the same period last year. Among the individual industries, vehicle manufacturers and automotive suppliers recorded the strongest growth in production, rising 13 percent. Other buoyant industries were

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

pharmaceuticals (up 9.5 percent) and the metal processing industry (up 2.9 percent). The electro industry and the chemical industry both continued to lose ground following a weak start to the year, shrinking 17.7 percent and 13.8 percent respectively. Machinery manufacturers recorded a fall in production of five percent as of September.

Activity levels should recover in the further course of the year. In the two-month comparison August/September 2023, industrial production was over five percent up on the previous two months. The purchasing managers’ index for manufacturing was two index points higher than its low point of the year in June 2023 at last count, reaching towards the threshold to expansion at 49.8 points in October.

We are sticking to our April forecast for manufacturing output of minus three percent.

United Kingdom: recovery sets in late In the United Kingdom, industrial production continued to fall in the first six months of 2023. In the first quarter, industrial production (excluding construction) was 2.2 percent down on the same period last year, then slid down another 0.5 percent in the second quarter. The turnaround finally came in the third quarter, driven chiefly by pharmaceuticals and electronics. On account of the weak first months, production in the first nine months of the year was 0.5 percent lower than in the same period last year.

United Kingdom: Industrial production*, Purchasing Managers Index 70

30

20 60 10

50

0

-10 40 -20

30

-30 2019

2020

Industrial production (right axis)

2021

2022

2023

Purchasing Managers Index, seasonally adjusted (left axis)

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

Manufacturing output, on the other hand, increased by 0.9 percent over the same period. Among the individual industries, vehicle production and pharmaceutical products recorded by far the strongest growth in output, rising 13.7 percent and 11.5 percent respectively. Other industries that performed well were producers of base metals (up 4.2 percent) and data processing equipment and optical products (up 5.1 percent). Electrical equipment producers only increased output by 0.5 percent.

Production levels were weak in the food industry (down 0.9 percent) and in machinery manufacturing (down 2.5 percent). Among the energy-intensive industries, the chemical industry did particularly badly, cutting output by 10.5 percent. The paper industry was also downward but less so, dropping off 5.3 percent.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

The purchasing managers’ index for manufacturing has been in contractionary territory for more than one year now and dropped to its lowest level this year in August 2023, down to 43 points. Purchasing managers were slightly more optimistic in September and October, which pushed the index up to 44.8 points. This is still very low, indicating that industrial activity will continue to be restrained in the fourth quarter. The positive trend in the first six months of the year and the low baseline is still likely to produce an increase in industrial production of around one percent for the year overall.

European Union: vehicle production recovers but big losses for energy-intensive industries In the European Union, industrial activity picked up a little at the start of the year. Industrial production (excluding construction) was 0.2 percent higher in the first quarter 2023 year on year. The primary drivers of growth were strong increases in vehicle production and pharmaceuticals. Energy-intensive industries went the other way, with chemicals, plastics, paper, and metals all recording significant drops in production. Output in the second quarter was 1.2 percent down on the previous year, with the downward trend set to continue into the third quarter. Overall, industrial production in the EU was 1.2 percent lower in the first nine months of this year than last year.

European Union EU27: Industrial production*, Purchasing Managers Index 65

30 20

55 10 45

0 -10

35 -20 25

-30 2019

2020

Industrial production (right axis)

2021

2022

2023

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 manufacturing sector, the downward trend was less pronounced. Production fell 0.4 percent over the first eight months of the year. Among the major industries, vehicle production (up 14.6 percent) and pharmaceuticals (up 10.9 percent) recorded the strongest growth. The manufacture of other transport equipment also laid down another solid performance, expanding 9.8 percent. Machinery manufacturers, on the other hand, only managed marginal growth of 0.3 percent. The electro industry turned down after two exceedingly good years, decreasing 5.6 percent. Output contracted substantially among the energy-intensive industries due to the high energy prices. Between January and August, the chemical industry reduced its output by 11.2 percent, the paper industry by 11.6 percent, and rubber and plastic products by 4.9 percent. The less cyclical food, beverages and tobacco industry curbed its production by 1.1 percent over the same period. Metal production and metal processing was also down by 2.9 percent as of August.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

The latest figures indicate a continuing downward trend in production levels. In the two-month comparison July/August 2023, manufacturing output in the EU was down by three percent following seasonal and calendar adjustment, both compared to the previous two months and compared to the same two months last year. What’s more, the purchasing manager’s index for manufacturing plunged down to 43.2 points in October reaching its lowest level in 2023 so far. We expect production to continue downwards in the fourth quarter, bringing output down by somewhat more than one percent year on year in 2023 overall.

Germany: stagnant production despite easing supply shortages In Germany, industry started out 2023 with minimal growth. In the first quarter 2023, industrial production (excluding construction) nudged up 0.4 percent year on year. The strong growth in vehicle production, machinery manufacturing and the electro industry proved to be more than enough to compensate for the sharp drop in energy production and among energy-intensive industries. Activity levels started to falter in the second quarter. Despite supply shortages easing up, particularly in the automotive industry, industrial output dropped 0.2 percent. In the third quarter, output was down across the board apart from in the manufacture of vehicles and other transport equipment. Overall, in the first nine months of the current year, industrial production was down by one percent on the same period last year.

Germany: Industrial production*, Purchasing Managers Index 70

40

65

30

60

20

55 10 50 0 45 -10

40

-20

35 30

-30 2020 Industrial production (right axis)

2021

2022

2023

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 manufacturing sector, output between January and September 2023 was 0.2 percent down year on year and following calendar and seasonal adjustment. Among the individual industries, vehicle production (up 14.4 percent) and other transport equipment (up 8.5 percent) recorded the strongest growth. Growth was much lower in the electro industry (up 2.8 percent) and in machinery manufacturing (up 0.5 percent). The energy-intensive industries all cut production rates considerably, with the chemical industry, the paper industry, glass, and ceramics all producing more than 14 percent less than in the same period last year. The downward trend was less pronounced among metal producers and metal processors, where production was only down by 3.3 percent. The less cyclical

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

food, beverages and tobacco industry produced 2.7 percent less than in the same period last year.

The production of pharmaceuticals was also down by only 1.1 percent.

The prospects for the remaining three months of the current year are rather subdued, with order backlogs among manufacturing enterprises dropping considerably. The latest figures for industrial production in the two-month comparison August/September 2023 show output falling 0.9 percent compared to the previous two months and as much as two percent compared to the same two months last year. Production levels in the energy-intensive industries chemicals and metals seem to have bottomed out, with output turning up slightly most recently. The purchasing managers’ index for manufacturing pointed down throughout the year until reaching its lowest level of the year of 38.8 points in July. Although it has since turned around and risen three times, it was only at 40.8 index points in October, far below the threshold value to expansionary territory of 50. Based on the course of manufacturing output this year, our growth forecast of spring of one percent growth has moved out of reach. We now expect production to stagnate in 2023 overall.

France: stable sideways movement but still below pre-pandemic levels France’s industry moved sideways this year. In the first quarter 2023, industrial production (excluding construction) reduced output by a minimal 0.3 percent (year on year). The trend turned around in the second quarter, with a small increase in production of 1.3 percent year on year. Production continued to gather momentum at the start of the third quarter, climbing 0.8 percent higher than in the third quarter 2022 but this was still around four percent lower than before the pandemic. Overall, production increased by a total of 0.6 percent in the first nine months of the current year.

France: Industrial production*, Purchasing Managers Index 60

35 25 15

50 5 -5 40 -15 -25 30

-35 2020

2021

Industrial production (right axis)

2022

2023

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 manufacturing sector, output was 0.8 percent higher as of September. The strongest growth year on year was recorded by vehicle production (up 13.9 percent) and other transport equipment (10.5 percent) which both managed double-digit growth. The electro industry (up 4.5 percent) and

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

machinery manufacturing (up 6.6 percent) also posted above-average growth as of September. The less cyclical food industry curbed production by 2.1 percent and pharmaceuticals by 1.7 percent.

Among the energy-intensive industries, metal producers and processors cut production by a total of 1.5 percent. The chemical industry decreased its output by only 3.1 percent, faring much better than in the European Union overall.

Economic momentum is set to cool off towards the end of the year. In the two-month comparison August/September 2023, industrial production was 0.3 percent down on the previous two months following seasonal and calendar adjustment. The purchasing managers’ index for manufacturing, which has been in contractionary territory since February, dropped down to its lowest level of the year of 42.8 points in October. In view of the weak prospects for the fourth quarter, we are halving our forecast for manufacturing output, from one percent growth down to 0.5 percent.

Italy: production above pre-pandemic level since summer Italy’s industry (industrial production excluding construction) had a setback at the start of 2023, recording negative growth of 1.3 percent in the first quarter year on year. The downward trend accelerated in the second quarter, with output dropping by 3.8 percent. Activity levels improved slightly in the third quarter but were still lower than last year. In the first nine months of the year overall, industrial production was 2.7 percent down year on year.

Italy: Industrial production*, Purchasing Managers Index 70

70 50

60

30 50 10 40 -10 30

-30

20

-50 2019

2020

Industrial production (right axis)

2021

2022

2023

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 manufacturing sector saw production fall on a similar scale, down 2.1 percent in the same period following seasonal and calendar adjustment. Among the individual industries, the chemical industry suffered the biggest drop by far with output plunging 8.3 percent. The metal processing industry also cut production by a hefty 3.7 percent. In the less energy-intensive electro industry, output was also down in the first nine months of the year. The drop was less pronounced, though, at 2.1 percent.

Pharmaceuticals (up 9.6 percent) and other transport equipment (up 11.3 percent) were able to increase output considerably with production levels in the third quarter 2023 also substantially higher than before the Covid pandemic in late 2019. The producers of motor vehicles, automotive suppliers and machinery manufacturers were also producing more than before the pandemic at last count. While

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

vehicle production had increased by 8.7 percent as of September, the production of machinery was only 0.2 percent higher than in the same period last year.

In the further course of the year, the downtrend in manufacturing output is set to continue. While the purchasing managers’ index for manufacturing has increased three times in a row since June 2023, it is still below the threshold to expansion of 50 points. In October, the index dropped to 44.9 points, its second lowest level this year. We expect production to fall further in the final quarter of the year. For the year overall, we are revising our spring forecast of one percent growth in production. We now anticipate production to drop two percent year on year.

Spain: production falls below Covid year levels once again In Spain, industrial activity again increased slightly at the start of 2023. Industrial production (excluding construction) expanded 1.2 percent year on year in the first quarter of the year. Almost all industries saw production rise in the first quarter, apart from the chemical industry and the producers of rubber and plastic products. Momentum then skidded to a halt in spring. In the second quarter, industrial production was 1.9 percent lower than in the previous year. The only industries to swim against the downward tide were vehicle production, pharmaceutical and the electro industry. The downward trend continued into the third quarter. In the first nine months of the year, production in Spain was one percent lower than in the same period last year.

Spain: Industrial production*, Purchasing Managers Index 65

40 30

55

20 10

45 0 -10

35

-20 25

-30 2020

2021

Industrial production (right axis)

2022

2023

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 manufacturing sector, output nudged down 0.1 percent over the same period, bringing levels back down below the Covid year 2019. Among the main industries, production in the chemical industry was down by 4.7 percent. The metal producing and processing industry cut its output by 1.9 percent.

Machinery manufacturing recorded minimal growth of 0.6 percent, while vehicle production, other transport equipment and pharmaceuticals all continued their positive trajectory from last year, expanding by more than ten percent in each case. Output in the electro industry was 9.2 percent higher

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

year on year. The less cyclical food, beverages and tobacco industry had curbed its production by two percent year on year as of August 2023.

The latest data indicate further weakness ahead. In the two-month comparison July/August 2023, production was stagnant compared to the previous two months and 0.9 percent down year on year.

The purchasing managers’ index for manufacturing has been below the threshold level of 50 points since April, indicating contraction. It dropped more than two index points in October, falling to its lowest point so far this year of only 45.1 points. We expect production to continue to decline in the fourth quarter. Year on year, manufacturing output is set to drop one percent.

Global trade Global trade activity already started to falter at the start of 2023. In the first quarter of the year, the global trade volume was two percent lower than in the previous quarter according to the Netherlands Bureau for Economic Policy Analysis (CPB). The downward trend continued at a more moderate pace in the second quarter, with minus 0.8 percent. The global trade volume as of August was 1.9 percent lower than in the first eight months of the previous year.

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

-10 -15 -20

2019 2020 2021 2022 Index: two-month average, after calendar and seasonal adjustments, in percent, year on year

2023

Source: Macrobond

In the first eight months of the year, emerging countries exported a total of 0.3 percent less goods than in the same period last year. Exports from Asian emerging countries (excluding China) recorded the most pronounced drop, falling 4.4 percent. Exports from Latin America and Africa and the Middle East decreased 0.3 percent in each case. Exports from Central and Eastern Europe bucked the trend, rising by a solid 3.9 percent. China’s exports also increased, going up one percent.

Exports from advanced economies were 1.2 percent down on last year as of August 2023. Trends within this group of countries were very mixed. Japan’s exports were 1.7 percent down in the first eight months of the current year, while exports from other advanced Asian countries dropped by a much more pronounced 6.7 percent. Exports from the United Kingdom fell 1.5 percent. The euro area exported 1.3 percent less goods than in the same period last year. Exports from the United States

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

headed the other way, expanding 3.6 percent. Exports from the other advanced economies increased less, rising 1.1 percent.

The latest figures seem to indicate a turnaround. Global exports in August 2023 were 1.1 percent higher than in the previous month. While exports from advanced economies rose by 0.5 percent at last count, exports from emerging countries displayed somewhat more momentum, rising 2.2 percent. If trade activity stagnates until the end of the year, the global trade in goods will be down by just over one percent and not up by more than two percent as forecast in spring 2023.

Development of German exports German exports continued their upward trend following the turn of the year 2022/2023. In the first quarter 2023, exports were 6.6 percent higher than in the same quarter last year. Trade with the United States and the United Kingdom picked up particularly. Only exports to China were still downward, falling a substantial 11.5 percent. In the second quarter, exports started to falter, going down 0.7 percent year on year. Exports to trade partners within the EU, to China and the United States were all down by a low single-digit percentage. Exports to the United Kingdom and the rest of the world, on the other hand, continued to rise. In the third quarter, exports dropped by 5.2 percent overall. Exports were down to all regions apart from the United Kingdom, with particular strong cuts in trade with China (down 9.9 percent).

Germany: Exports according to region of destination 50 40 30 20 10 0 -10 -20 -30

remaining countries U. Kingdom USA China Euro area

-40 2019

2020

2021

2022

2023

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

All in all, German exports stagnated in the first nine months of the year compared to the same period last year (up 0.1 percent). Looking at the destinations of exports, exports to the United Kingdom grew the most, rising 5.5 percent. Trade with the United States also increased, going up 2.1 percent. Exports to the euro area decreased 1.5 percent. Trade with the other EU member states was weaker still, contracting two percent. Business with China was a hefty 8.7 percent down year on year, while exports to the other countries increased 3.1 percent.

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The latest figures show increased downward momentum. In August and September 2023, exports in nominal terms were 1.9 percent down on the previous two months. The mood among exporters is correspondingly grim. According to the ifo Institute, export prospects among the companies surveyed have been predominantly negative since June 2023. Even if exports remain steady until the end of the year, German exports will be down two percent in nominal terms for 2023 overall.

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Industries in Germany Automotive industry: production continues to recover Production The various crises over the last few years (Covid, material shortages, Ukraine war) have brought domestic production down from over 5.6 million passenger cars in 2017 to 3.1 million units in 2021.

After a slight rebound to around 3.5 million units in 2022, production this year is on track to register its highest relative growth since 1976. We currently still expect to see 15 percent growth for the year overall, bringing the total of passenger cars to four million. In the first ten months of the year, including preliminary figures for October, units are up by as much as 23 percent. This strong upward momentum is being propelled both by slowly stabilising supplies, notably in semiconductors, and the ramp up of electric mobility. Germany is now the world’s second biggest producer of electric passenger cars, following China and ahead of the United States. In the first nine months of the year, production of pure battery electric vehicles (BEV) doubled, bringing the percentage of passenger cars produced in Germany that are completely electric to 24 percent. That is more than the percentage of diesel cars, which was 20 percent. At 49 percent, petrol-powered cars were still the most popular choice. The remaining seven percent of domestic production were plug-in hybrid vehicles (PHEV).

Capacity utilisation in the automotive industry registered a small drop in the fourth quarter, going down from 87.1 percent to 85.4 percent, according to ifo Institute figures. Among passenger carmakers, utilisation even fell from 86.9 percent down to 79.7 percent. The lower capacity utilisation rate reflects the continuous downward trend in incoming orders of more than one year now. Although high order backlogs have cushioned the impact thus far, they are steadily dwindling to normal levels. Material shortages are still the biggest barrier to increasing production, with a shortage of skilled staff and low new orders also causing bottlenecks. The size of the industry’s workforce has remained stable over the year despite the shift from combustion engines to electric drives which harbours challenges for automotive suppliers in particular. In August, the number of workers in the automotive industry totalled 779,300 which is 0.5 percent more than one year ago. The growth in the workforce was fuelled by motor vehicle producers who increased their workers by 1.5 percent. Automotive suppliers kept their workforce almost steady, losing just 0.1 percent.

Exports In the first ten months of the year, exports experienced a similar upwind in momentum with an increase of 22 percent up to 2.6 million passenger cars. Here too, the unusually high order backlog is being worked off successively. The proportion of exports dropped by 0.8 percentage points down to 75.2 percent. The biggest trade partner in the first three quarters of the year was the United Kingdom with 296,000 passenger cars (up 24 percent), overtaking the United States which received 291,500 passenger cars (up 14 percent). The third most popular destination of exports was China with 196,200 units (down 15 percent). Export prospects have also brightened up slightly, according to the latest ifo figures. The number of companies surveyed that are positive about their prospects was exactly the same as the number of companies surveyed that rated their prospects as negative.

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

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Construction industry: 2023 and 2024 set to be difficult Production in mainstream construction has faced manifold problems since 2022. The high prices of building materials have brought construction prices up considerably more than ever before. The hefty increases in interest rates on the capital markets (up three percentage points between January and September 2023) have made refinancing construction projects substantially more expensive. At the same time, the high rate of inflation is diminishing the disposable incomes of private households.

The number of building permits (figures only available for building construction) clearly shows where the trend is heading. From January to August 2023, the estimated construction costs were down by 30 percent in real terms. The drop in the number of building permits for residential properties was even higher.

Incoming orders for mainstream construction have been on a definite downward trend since the second quarter 2022. From January to August 2023, incoming orders fell 7.8 percent in real terms with mixed trends in the individual segments. While orders for civil engineering projects increased two percent, orders for building construction decreased 16.7 percent. Orders for residential construction suffered a particularly pronounced plunge of 24.7 percent. This year, German mainstream construction has fed off its record high volume of orders in hand that had accumulated by the start of 2022. At normal production rates, the reach of orders in hand in February 2022 was five months. By October 2023, reach was down to 3.7 months. In building construction, the order backlog was down from 5.6 to 3.6 months.

In reflection of this negative underlying trend, sentiment in the industry has deteriorated dramatically.

The balance of ratings of expectations in the ifo economic barometer dropped from plus four points in January 2023 down to minus 17 points in October. Business prospects have oscillated around 40 points this year so far with no improvement in sight.

The construction industry expects mainstream construction revenue to decrease five percent this year in real terms. Residential construction will suffer the biggest loss as mainstream construction deals almost exclusively with new construction in this segment. The steep price increases, substantial rises in interest rates, the almost complete termination of state support and the difficulties of including the high construction costs in the basic rent or the square metre price on the market has scared off investors for the long term. The drop in revenue here is likely to be around eight percent in 2023 overall.

The situation is much better in commercial construction and in public construction. Both segments are benefiting from the clear upward trend in civil engineering. Non-residential construction is also faring better than residential construction. The revenue of these two segments is set to contract by around three percent in real terms this year.

The construction workforce is still relatively stable compared to the construction market itself. In the current year, the construction industry expects the workforce to stabilise at the same level as last year with around 927,000 workers, despite the drop in production. This is probably also due to the fact that one quarter of the workforce is older than 55 and will be retiring in the foreseeable future. A further decrease in production in real terms is expected for mainstream construction in 2024. Incoming orders are not expected to improve dramatically across the board which means that orders in hand are set to

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dwindle further. Production in civil engineering should, in contrast, remain stable or slightly positive in 2024 as well. The level of construction activity is not likely to turn around until 2025 at the earliest.

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

Building materials industry: construction crisis triggers slump in production The slump in construction activity, particularly in residential construction, has considerably dampened the prospects for the building materials industry. At the start of the year, the German Building Materials Association (bbs) had forecast a moderate drop in production of four percent for the year, which, as things stand, look decidedly too optimistic. Some subsegments related to residential construction such as bricks, aerated concrete and sand-lime have seen production fall by more than one third. Production has fallen less steeply in the segments that also supply the more stable civil engineering sector (such as concrete, gravel/sand) but has still been pointing clearly downwards. All in all, the building materials industry registered a 16 percent drop in production between January and September 2023 year on year, with a 20 percent decrease in September. For 2023 overall, the bbs now expects production to decrease on a scale of 15 percent overall with divergencies between the individual segments remaining large on account of the different sectors they supply.

The trends in the ifo barometer for building materials reflects the current concerns of the industry. With a balance of minus 14 percentage points, current business was rated with considerably less enthusiasm. Business prospects remained stable at minus 46 points but are still very pessimistic.

Companies also rated the level of orders in hand as decidedly negative. In view of this grim sentiment, the bbs expects the current slump in production to make companies increasingly reticent to invest.

The huge decreases in production in parts of the building materials industry has brought capacity utilisation down. Short-term work and temporary reductions or shutdowns of production are on the agenda in many cases. The workforce has already felt the impact of the crisis. After an extended upward trend in the number of workers in the industry, this year has seen an accelerating downturn.

As of August 2023, the number of employees was 1.6 percent down on one year ago. The only way to avoid capacities being cut for the long term is to swiftly stimulate demand. Important first steps in this direction are the package of measures presented by the federal government in late September and the pact agreed between the national government and the federal states for accelerated planning, approval and implementation. These measures must now be implemented as quickly as possible and in full so that they can actually unfold their intended impact and be supplemented in certain aspects.

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

The chemical and pharmaceutical industry: hopes are on for 2024 Production The German chemical industry is still having difficulties. Although production nudged up slightly over the spring and summer quarters, this did not mark a turnaround. For the industry overall, production

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between January and September was almost ten percent down year on year. Excluding pharmaceuticals, production was down by almost 14 percent. The production of base chemicals, which is particularly affected by the energy crisis, was still well below last year’s level. Producer prices pointed down during the course of the year which also brought revenue down. The total revenue of the industry in the first nine months of the year was more than twelve percent lower than last year. Excluding pharmaceutical revenue, the decrease amounted to 15.5 percent. Order books are continuing to empty out. Almost 50 percent of companies lamented the low level of new business in the latest survey.

In view of this trend, companies are still in a recession mood and most do not see the situation brightening up any time soon. Export prospects and production plans remain in negative territory. The high energy and commodity costs and low level of orders will continue to pull down business. Almost all companies are therefore trying to cut down costs. Reports of extensive restructuring measures and efficiency programmes are on the rise. These include the closure of production facilities, the discontinuation of individual business areas, the sale of business units and the shifting of investment abroad.

The global economic slowdown, recession in Germany, weak industrial activity and internationally noncompetitive energy and commodity prices – all these factors are making things very difficult for the chemical industry. The VCI (German chemical industry association) still expects production to fall by around eight percent in 2023 overall. Excluding pharmaceuticals, production levels are likely to be around eleven percent lower than in 2022. The industry’s revenue is set to drop by around 14 percent.

Companies are hoping for momentum to set in next year.

Exports: no momentum from foreign trade Foreign trade failed to provide any momentum. Foreign sales with chemicals were well below last year’s level at last count. Pharmaceutical sales abroad, on the other hand, are trending robustly upwards. Exports to Europe, the biggest market for German chemicals, were subdued by the stagnating European economy and downward industrial production. Outside of Europe, the overall economic trend was slightly more positive, but industrial production and, with it, the demand for chemicals remained sluggish here as well. In some regions of the world there were surplus capacities in the chemical industry. European production facilities are at a clear disadvantage because of their high production costs. In this context, German chemical companies are struggling to keep up their exports.

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

German electro and digital industry again heading for annual growth In comparison to the subdued state of the overall economy, the German electro and digital industry has proved resilient over the course of 2023 so far. The industry increased its production by 2.3 percent in the first nine months of the year compared to the same period last year and following price adjustment. Contrary to many other manufacturing industries in Germany, it stayed upward. As producer prices within the electro industry are higher than in the previous year, despite some sideways

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movement here over the last few months, the growth in revenue in nominal terms was even higher.

Revenue increased 9.4 percent between January and September.

The general economic downturn is nonetheless starting to affect the German electro and digital industry. One example is the momentum in incoming orders which has tailed off over the course of the year resulting in orders decreasing 1.3 percent over the first three quarters. The reach of orders in hand, at 4.8 production months at the start of the fourth quarter, is still much higher than the long-term average (2.8 production months between 2000 and 2020), but capacity utilisation is at a relatively low 81,1 percent, reflecting the increasingly bleak state of the economy. Electro companies are also becoming more pessimistic. According to the ifo barometer, the majority of companies surveyed meanwhile rate not just business prospects but also current business as negative. The primary barrier to production, according to the latest survey of October, was insufficient demand with new business sluggish.

The workforce of the electro industry has not been affected by the tail-off in momentum. As of late August 2023, the industry employed a total of 909,000 people, which is 2.5 percent more than one year ago. One reason behind the stable development of the workforce is that companies are anticipating the challenges which demographic change will bring about. In the next ten years, the industry will have to replace an estimated one quarter of its current employees.

For 2023 overall, the German Electro and Digital Industry Association (ZVEI) still expects production to increase by between one and two percent following price adjustment. Growth has been higher so far but is likely to drop down to the higher end of this corridor in the last three months of the year, particularly in view of the high growth seen in the fourth quarter last year. In the medium to long term, the German electro and digital industry stands to benefit from structural tailwind in the transition towards digitalisation, electrification and automation.

Electro exports: exports down to China, up to the United States German electro and digital exports rose 8.2 percent in nominal terms in the first eight months of 2023 year on year. In the same period, export prices increased by five percent. In the last two months, electro exports have fallen just below last year’s level but should still be slightly in the positive for the year as a whole. The German electro and digital industry would then beat its record value of 2022 yet again.

Exports to the United States posted a double-digit increase, rising 11.1 percent from January to August year on year. The industry’s exports to the euro area also surged 10.4 percent. Exports to China went the other way, dropping off 3.7 percent in the first eight months of the year.

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

Digital industry Business in the digital sector in October was once again worse than it was in September. Prospects for the coming months are marked by uncertainty. ITC companies rated current business at 21.9 points in October, which is 4.1 points less than in September. Business prospects for the upcoming months were rated at minus 4.3 points, which is 7.6 points higher than in the previous month. In September, business prospects dropped 3.5 points down to their lowest level of the year at minus 11.9 points. The Bitkom-ifo Digital Index is composed of assessments of current business and business prospects for the next three months to visualise business sentiment in the digital sector. In October, the index remained in positive territory at 8.4 points, improving slightly on September (up 2.2 points). Sentiment

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in the economy overall, according to the ifo barometer, is at minus ten points. The digital sector is thus proving to be more resilient to crisis than the German economy as a whole.

The digital sector’s biggest barrier to increasing business remains the shortage of skilled workers.

Although the index dropped down slightly in October by 1.1 points compared to the previous quarter, it is still at a very high level of 44.6 points. Insufficient demand is becoming more of a problem with the index here climbing four points to 35.5 points. Financing problems do not really play into it at all, keeping steady at a low 3.8 points (down 0.3).

ITC companies plan to keep on expanding their workforce. Employment prospects were at 16.1 points (up 1.9), which indicates that the large majority of companies plan to hire more staff in the next three months. The demand for digitally skilled workers is high and has continued rising. The index on price expectations has gone the other way, sliding further to 17.1 points (down 3.7).

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

Foundry industry: frosty autumn 2023 Production in the foundry industry was 0.2 percent higher between January and August 2023 this year than last year. While production in iron and steel foundries was 0.9 percent lower than last year, nonferrous metal foundries produced four percent more. The production volume this calendar year so far of 2.6 million tonnes is still 22 percent below the 2018 level. The revenue of German foundries between January and August this year was nonetheless up by 5.1 percent on last year, on account of the war in Ukraine and exploding energy prices keeping last year’s figures down. The 600-odd companies operating in the industry currently employ around 70,000 workers, according to the survey of the German Foundry Association, the BDG. Sentiment in the German foundry industry in autumn 2023 was already bitterly cold, standing at minus 56.3 points in October according to the ifo Institute. Prospects for the next six months have been in negative territory since the outbreak of the war in Ukraine, and, over the last few months, have broken one negative record after the other. As of the end of October, the month in which the war in and around Israel threatened to escalate, prospects of the German foundry industry were at a balance of minus 76.1 points. This is all the more serious in view of the fact that current business is also on the plunge.

Exactly one year ago, the balance for this component was at positive 44.7 points. It has undergone a complete turnaround since then and was at minus 33.3 points at the end of October.

The record volume of order backlogs that had accumulated last year have meanwhile dwindled steadily, not because of increased production but because of very low incoming orders. New orders in the first three quarters of 2023 were 14 percent down on the same period last year and the most frequently mentioned restriction on production. Capacity utilisation for the foundry industry overall was at 78.4 percent which is lower than the long-term average.

The ongoing debate on the transitional electricity price has likely dampened sentiment considerably.

The hard data confirms the extremely tense situation in many respects. A look at the ifo figures show that location is a central issue. Unsurprisingly, competitiveness against countries outside of the EU has been deteriorating for many months now. The rating of competitiveness within the EU has also now

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become more pessimistic. Just under half of German foundries have noticed their competitiveness compared to other EU countries decline over the last quarter. Not a single company has seen their competitiveness improve. The planning uncertainty due to unclear energy costs is absolute poison for Germany as a location for industry.

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

Glass industry: downward trend but ray of light on horizon The trends in the German glass industry are not looking good, in line with the overall economic trends in Germany. Since the summer, the glass industry has been even weaker than the economy overall.

Over the last few years, the glass industry has proven very robust, weathering the Covid pandemic and the gas shortages relatively well. It then started to falter in spring 2023. Domestic demand turned down particularly, with hollow container glass, flat glass and special glass all taking a tumble. Multiple reasons are behind this downturn. In the case of flat glass and glass wool, it is primarily the low level of construction activity. For hollow container glass (packaging glass for food and drinks), the primary factor keeping activity down along the whole value chain right up to retail is the reduction in storage capacities. A further factor was general consumer reticence.

While business sentiment has improved slightly over the last three months, it is still at a very low level.

Revenue is trending similarly. According to Federal Statistical Office figures, the total revenue for the whole glass industry between January and September 2023 was 0.9 percent down on the same period last year. Despite this negative trend, there is a ray of light. In September, foreign sales were 13.3 percent higher than in the previous month both in real terms and following price adjustment (price adjusted figures: euro area 16.2 percent; outside the euro area: 10.7 percent). Foreign trade has thus expanded in real terms which could indicate a turnaround. Domestic sales remain weak and were again slightly down on the previous month. The domestic market needs stimulation and policymakers must finally take appropriate measures to this end. This includes introducing a transitional electricity price for energy-intensive industries to restore their competitiveness both against competitors in the EU and internationally, and driving forward the transition.

Contact: Dr. Johann Overath / Phone: +49 211 9022 7821 / Mail: overath@bvglas.de

Ceramics industry The ceramics industry started out 2023 well in the first quarters. The steep increases in energy costs have nonetheless had a severe impact on the energy-intensive ceramics industry, as has the high rate of inflation.

The porcelain industry had a downward start to 2023, with incoming orders decreasing seven percent.

Dinnerware is not expected to match last year’s figures. Technical ceramics increased total revenue by around 16.9 percent in 2022 compared to 2021, regaining ground lost during the crisis. It started off 2023 with high revenue growth but, here too, incoming orders are decreasing rapidly with 9.7 percent

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less orders in the third quarter than last year. The weak activity among automotive suppliers could well bring down sales in this segment. Sanitary ceramics emerged largely unscathed from the pandemic but is now suffering from the high inflation and associated loss of purchasing power. Incoming orders were 16.9 percent lower than last year at last count. Tile producers have registered a healthy growth in sales this year so far but, looking at the incoming orders this year, a decrease in sales in the final quarter of 2023 seems to be on the cards. Incoming orders is already indicating a slump in revenue and is much lower than last year. The current recession and high inflation throughout 2023 could weaken the upward trend among private consumers, especially in dinnerware, tiles and the project business. The industry is therefore set to shrink in the next few months. Furthermore, the energyintensive ceramics industry is greatly affected by the persistently high gas prices which translates directly into a competitive disadvantage. In addition, the carbon pricing scheme introduced in Germany for small plants is distorting international 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. The political debate on the heating law has also not improved matters for sanitary ceramics.

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

Aviation Although earnings turned up considerably in parts of the German aviation industry in 2023, it is still lagging behind the rest of Europe. At the same time, the industry is confronting the challenge of advancing the decarbonisation of aviation without distorting competition.

In Europe over the summer this year, the number of seats available to, from and within Europe (EU / EEA / UK) recovered further, reaching 94 percent of the 2019 level. Germany was not able to keep apace, with seats available at only 82 percent of the number available in summer 2019, but this was still nine percent more than in summer 2022. Excluding Germany, in the rest of Europe seats available were at 98 percent of their pre-crisis level.

Regarding passenger numbers in the current year, German airports counted 149 million embarking or disembarking passengers up to and including September. This corresponds to 78 percent of the figure counted between January and September 2019 and is 22 percent higher than in the same period last year. There are several reasons why Germany is lagging behind the rest of Europe: ▪

▪

European point-to-point carriers are increasingly moving their fleets and their business activity to airports outside of Germany. Fuelling this shift are the high costs of using German airports with high statutory charges and fees including aviation tax, aviation security fees and air traffic control charges. The resulting reduction in the number of flights connecting German cities to cities within Europe reduces the overall appeal of Germany as a business location.

A significant proportion of local air travel within Germany has not returned since the end of the Covid pandemic. Demand for decentralised routes which do not connect passengers to the main international hubs has decreased particularly, with passengers opting for road or rail transport or digital means of communication instead. The number of domestic passengers this year up to and including September is at 49 percent of the same period in 2019.

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▪

In long-distance flight travel, regulations have been distorting competition and causing a shift of traffic flows for the busiest connection, Germany-Asia, to hubs in non-EU locations, such as Doha, Dubai and Istanbul, over the last few years and this has continued.

Air freight failed to keep up the strong upward trend registered throughout the Covid years. Freight volume between January and September 2023 was eight percent lower than in the same period last year. Compared to 2019, the freight volume was three percent less. Any upwind is being curbed by the high inflation over the last few months in combination with political crises, weak economic development and supply chain problems.

The outlook for seats available in the next six months shows current trends continuing. Compared to the same period last year, seats available in German airports from November 2023 to April 2024 are set to be 13 percent higher. This will only correspond to 81 percent of the pre-Covid level while the other European countries will hit 101 percent in this period.

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

Machinery manufacturing: caught in a web of challenges In the first nine months of the year, production in the machinery and plant manufacturing sector in Germany was 1.1 percent higher year on year following price adjustment. In view of the downward trend in new orders, this increase was driven solely by the high order backlogs (reach of eleven months as of August). Even this slight expansion in production was only possible thanks to supply chain bottlenecks easing noticeably. While almost three quarters (74 percent) of all machinery manufacturers had lamented strained or even torn supply chains in early December 2022, this number had gone down to one fifth (19 percent) by the end of October 2023. Things are still not quite back to normal but have certainly calmed down. Companies in the industry believe this trend will continue in the next few months. Order backlogs are going down and will not be able to support production that much longer.

Although they currently (as of August) still have an overall reach of eleven months, which is above the long-term average, the distribution is very uneven. According to the 20th flash survey conducted in late October by the German association of machinery manufacturers, VDMA, the reach of orders is already below average for 60 percent of all companies surveyed. VDMA economists are therefore sticking to their autumn 2022 forecast for 2023 and expect the production of plants, machinery, components and services to drop two percent in real terms. This outlook is supported by two figures from the ifo economic barometer. First, a clear decrease in capacity utilisation from 88.8 percent in June down to 85.9 percent in October and, second, an increase in companies recording a lack of orders from 24 percent to 34 percent over the same period.

The downward trend in production in real terms is set to continue into 2024. Incoming orders in the first nine months of the year were a good 14 percent lower than in the same period last year. In the October flash survey, 22 percent of companies said their order backlog would no longer be able to prop up production levels next year. A further 46 percent of companies surveyed said their order backlog would only be able to support production a little. Investors are still being reticent with orders for new machinery and plants because of the numerous uncertainties and challenges. The war in Ukraine and, more recently, the war in the Middle East, rising tensions between the United States and China, the weak performance of the Chinese economy and the persistently high inflation rates and increased interest

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rates are only some of the factors currently weighing investor sentiment down. Compounding the situation further is that over three quarters of machinery manufacturers feel massively burdened by excessive bureaucracy. The majority of companies see an urgent need to improve location-related factors such as increasing the availability of skilled labour (68 percent of companies surveyed) and lowering the high energy prices (58 percent), high labour costs (56 percent) and high tax rates (52 percent). Of course, there are also opportunities. Exactly one quarter of machinery manufacturers identified automation and digitalisation as an opportunity. Sixty-one percent of companies regarded building resilient supply chains as an opportunity, and 45 percent climate change as an opportunity.

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

Nonferrous metal industry In October, the situation of the German nonferrous metal industry was much worse than one year ago.

The prices for electricity and gas are extremely high by international comparison and have considerably curbed production in energy-intensive segments such as metal production, even causing some facilities in Germany to be shut down. The federal government’s electricity price relief package has brought a degree of planning certainty for particularly power-intensive facilities but for the large majority of nonferrous metal companies it means that prices stay at their current level with no tangible decrease in electricity prices. The order situation remained strained in more than half of the companies surveyed.

Around 20 percent of companies have already put workers on short-term work, and several are planning to do so within the next three months. The general shortage of staff (problems with replacing older staff members, high sick rate) proved challenging, nonetheless. In the first six months of 2023, the industry produced 3.1 million tonnes (down twelve percent year on year) and a revenue of 35 billion euros with a combined workforce of 107,000 employees and 630 companies. Domestic sales accounted for 54 percent of the revenue and represents the industry’s biggest market. The nonferrous metal industry is divided into the following stages of the value chain: production (raw metal), semifinished 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 producers of primary aluminium recorded the steepest drop in the first six months of 2023 with a plunge of 50 percent. Before the energy crisis, primary aluminium producers had been producing almost three times as much. The decreases in the production of refiners and remelters, whose products are mainly used for the further processing of semi-finished products, were less pronounced at minus one percent and ten percent respectively. The production of semi-finished aluminium products amounted to 1.2 million tonnes in the same period, which is a decrease of ten percent compared to the first six months last year. Production in the aluminium further processing segment was nine percent less than in the first six months of 2022, down to 161,000 tonnes. In the copper industry, the biggest segment, the production of semi-finished rolled extruded and drawn products, recorded a drop in production of 18 percent compared to the same period last year, down to 347,000 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 slide down 33 percent. The output of producers of semi-finished products of zinc, nickel, lead, tin and other nonferrous metals also plunged 23 percent, down to 69,000 tonnes. The nonferrous metal foundry industry produced 441,000 tonnes of cast parts in the first six months of the year, four percent more than in the same period in 2022.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

Foreign trade slumps Foreign sales of the nonferrous metal industry amounted to 16 billion euros in the first six months of 2023. The proportion of exports remained on the low level of last year of 46 percent. Germany has been a net importer not only of ores and concentrates but also of crude metal for many 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. The imports of raw metal plummeted 55 percent between January and May 2023 year on year, down to 767,000 tonnes. Exports of raw metal also crashed 51 percent down to 204,000 tonnes. In the first five months of 2023, exports of semi-finished goods again exceeded the imports of semi-finished goods, with imports dropping 19 percent down to 857,000 tonnes and exports only falling six percent down to 957,000 tonnes.

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

Pharmaceutical industry continues to settle down in wake of Covid pandemic Production levels in the pharmaceutical industry are slowly returning to the much lower levels seen before the pandemic, dropping this year by 1.4 percent overall though with strong fluctuations from month to month. Domestic sales stayed close to their pre-crisis level to which they had returned by the end of last year. Before then, vaccine production had fuelled domestic sales to a good one quarter higher for a period of eighteen months. Now, they are well over twenty percent down year on year.

Foreign sales picked up again considerably over the summer. Unless we see a wave of vaccination over the next few months, foreign sales should also get back to normal levels and return to their precrisis growth trajectory. This year, foreign sales are set to exceed the high level posted last year by seven percent. All in all, revenue is heading for a 2.9 percent fall following price adjustment.

The industry’s workforce is, like production, on a persistently upward path and heading for substantial growth. Employee numbers were almost eight percent higher than last year at last count. This is mostly due to individual companies that have either opened new facilities or used the financial scope from the last two years to strengthen their capacity to innovate. However, decisions to open new facilities and increase staff numbers are usually made several years in advance. For many other companies, last year’s changes in the legislation (Financial Stabilization of Statutory Health Insurance System Act) have prompted them to cut staff. The ifo Institute figures confirm this trend with the proportion of companies planning to reduce their workforce much higher than normal. Growth in the industry’s overall workforce is thus expected to flatten out tangibly.

Investments last year are estimated to have gone down by just over six percent. The steep increase in the cost of inputs has hit the pharmaceutical industry hard as, unlike most other industries, it cannot pass on these cost increases to its customers. This factor alone has considerably restricted their financial leeway. Compounding the situation further is the Financial Stabilization of Statutory Health Insurance System Act which not only narrows the financing scope for urgently needed investment but also considerably deteriorates the framework conditions in important respects leading to an erosion of the quality of physical and research capital. Although investment is likely to increase moderately this year, expenditure in new facilities and research and development is still far below the levels seen in

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

previous years even though production and employment have now been pointing clearly upwards for some time.

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

Steel industry: almost all indicators negative in 2023 Crude steel production has been on a downward path since its last high in 2017 (around 43 million tonnes). In the first three quarters of 2023, production only totalled around 36 million tonnes (projected onto the year) which is around four percent than last year. Compared to 2017, production is down by around 16 percent. Ironically, electric steel producers, which produce relatively low-carbon steel, are particularly hard hit by the high electricity prices as they buy in a lot of electricity.

Regarding steel demand in 2023, Germany is on a lower trend than the EU overall. The slump in demand this year was more pronounced in Germany than in the rest of the EU because of the high energy prices and rising interest rates affecting German industry in general. In 2023, German domestic demand is set to drop by around ten percent (EU: down five percent), bringing it below the 30 million tonne mark for the first time since the crisis year 2009. This would correspond to a drop of almost 30 percent since 2021.

The outlook for the steel industry in Germany is also subdued. Incoming orders have stagnated on the level of last year and are therefore still below the pre-pandemic level. A proper recovery is not in sight for 2024, but the year could see a slight technical correction due to inventory build-ups. Demand is therefore expected to remain low at around 32 million tonnes.

The European steel industry is still bowed by pressure to import. The import quota is currently at a historically high level on account of the persistent structural crisis in the steel industry. This situation may well become entrenched given the considerable differences in energy costs compared to other steel-producing regions in the world.

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

Steel and metal processing: production down 2.6 percent year on year after three quarters After falling only 1.7 percent in the first six months of 2023, production then accelerated downwards to minus 4.2 percent year on year in the third quarter. Output in the third quarter 2023 was 2.9 percent less than in the second quarter. In September, the industry produced 6.5 percent less than in the same month last year. Twelve out of 14 segments are currently down year on year, with decreases in the double digits in four cases. The segments infrastructure and security were the only two segments to register growth. The major German industries, machinery manufacturing and vehicle production, were downward, as were consumer goods segments. Demand remained weak, with incoming orders in the third quarter 9.5 percent down on the second quarter, indicating further declining production in the final

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

quarter of 2023. The forecast for production thus needs to be downwardly revised, down to minus three percent.

Sentiment in the steel and metal processing industries in Germany brightened up marginally in October according to the seasonally adjusted figures of the ifo survey. Current business was rated unchanged to the previous month (improvement of 0.1 balance points) and business prospects were 1.7 points less pessimistic. The original figures before seasonal adjustment show a different picture. The number of companies that rated their current business as good decreased by another 2.8 percentage points bringing the total to under 20 percent, the lowest level since the Covid year of 2020. The trend in prospects was even more pronounced. Forty-nine percent of companies surveyed now expect a deterioration of business in the upcoming months, which is 3.7 percent more than in the previous month. Only 5.8 percent of companies are still optimistic about their business prospects over the next six months.

All indicators are signalling that Germany’s future as an industrial location on the whole is on the rocks, not just for particularly energy-intensive industries. Relief measures must be decided very swiftly and bring effective relief to all industries across the board. Policymakers must not squander their scope for action in fruitless discussions.

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

Textile and clothing industry: heterogeneous development, challenging outlook The economic recovery of the textile and clothing industry has only made very slow progress over the last few months. The trends of the individual segments diverged considerably. While the figures for textiles have been negative almost without exception this year, clothing has recovered well from the crisis. As of August 2023, clothing revenue was 15.2 percent up on last year and its workforce 4.6 percent larger. Textiles, on the other hand, saw revenue drop 0.8 percent and the workforce shrink by 1.6 percent.

There are three main reasons behind this divergent development. First, a large part of the textile industry is energy intensive. Second, as a supplier to other industries, textiles is also dependent on the development of those industries, which has mostly been very difficult over the past few months. Lastly, the textile industry relies on inputs from petrochemical raw materials. The developments on the commodity, energy and sales markets over the past few months were therefore very challenging for the textile industry.

The case was different for clothing. As an industry that is close to consumers, it was able to generate real growth in revenue. Domestic consumption was unusually strong at last count. Clothing is also much less energy-intensive than textiles.

Clothing exports were below average, rising only 1.1 percent, while exports of textiles even turned negative, falling 4.5 percent over the course of the year so far. After contributing to revenue growth for the first few months of the year, exports have tangibly lost steam.

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Industry Report | Industrial production and trade in the individual industries 29/11/2023

Short-term prospects have become gloomier after an interim high at the start of the year. Current business and prospects both dropped steadily across both segments. Clothing is still on a higher level than textiles.

The latest survey by the German association for the fashion and textile industry shows that just under 45 percent of companies surveyed expect revenue to drop in the short term, compared to just 37 percent in May. However, the number of companies that expect revenue to improve also increased slightly to a good 20 percent.

Price increases are an increasingly large problem for companies. Energy, labour, and commodity costs are cited as the main problem by almost half of the companies surveyed. A further third identified dropping demand as their most pressing challenge. The shortage of skilled labour, on the other hand, has become less acute in comparison.

In this context, only a minority of twelve percent of companies surveyed said they planned to invest in the next few months.

The latest figures show slightly more optimistic prospects. The volume of production is gradually rising again but will still be lower than last year for the industry as a whole. Overall, a turnaround is not on the cards any time soon.

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

Editorial / Graphics

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

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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