The German electronics and digital industries saw a return to significant growth in 2021. Both production in real terms and nominal sales increased by ten percent. Exports also grew by ten percent. In fact, the industry has not only made up for the losses it suffered during the pandemic in 2020, it has done significantly better than expected. At 200.4 billion euros, industry profits last year were higher than ever. And incoming orders developed at an even more dynamic pace, increasing by almost a quarter in 2021. As such, companies are currently sitting on a record number of orders stretching a full six months into the future. Capacity utilisation is currently above average, at 88 percent.
The first seven months of 2022, however, saw a considerably more modest recovery, in particular when viewing the figures in real terms. This was no doubt a reflection of the multiple challenges the industry is currently facing. Consider the high inflation rates, continuing supply chain issues, China’s zero-Covid strategy and the resulting lockdowns, the effects of the war in Ukraine or the growing number of trade barriers caused by political fragmentation.
Fully integrated into the international division of labour
It would be hard to find an industry as fully integrated into the international division of labour as the electronics industry. Boasting exports (including re-exports) worth 224.6 billion euros in 2021, the industry is responsible for approximately one sixth of all German exports. The individual countries that receive the largest number of German exports are China and the US. The amount of direct investment abroad was most recently valued at 46.8 billion euro. That is 15 percent of the corresponding figure for German industry as a whole.
German electrical exports to Russia fell to a value of one billion euros between January and July 2022. That represents only half of the value from the same time period the year before. The percentage of exports to Russia as measured against total exports from within the industry has shrunk to a mere one percent. The country has slipped down to 29th in the ranks of countries importing German goods. Before the invasion it was in 16th place, and ten years ago it was in the top ten.
Supply chain bottlenecks and skilled labour shortages
As the second largest employer in the manufacturing industry, the German electronics and digital sectors had over 886,000 employees at the end of July 2022, two percent more than in the previous year. The number of furloughed employees in the industry has now fallen to only 7,600. In May 2020, there were almost 182,000 furloughed workers, due to the effects of the Coronavirus pandemic. These excellent employment figures are not least a reflection of the skilled labour shortage currently plaguing every second business.
And supply chain bottlenecks represent an even greater barrier to production. For several months, 90 percent of all businesses in these sectors reported raw material shortages and problems with delivery. This is unprecedented. There have been no such shortages recorded in the relevant data set since records began, not even in the 2000s as a result of the dot-com bubble’s boom and bust, or during recovery from the global financial crisis. Back then – starting in 2010 – it was rare-earth elements that were hard to come by.
Natural gas is essential to some processes
And what about energy intensity and dependence on natural gas? The electronics industry is not one of the most energy-intensive industries. Less than two percent of costs for all material and goods purchases are spent on electricity, plus district heating, natural gas and oil. However, natural gas is essential for some production processes. This is the case, for example, for semi-conductors, batteries, specialised cables or some aspects of automation. Natural gas is even required for some of the manufacturing steps needed to produce heat pumps. And yet many advanced technologies are absolutely irreplaceable when it comes to maintaining critical infrastructure. Without a steady stream of electronic, automation and semi-conductor components, manufacturing plants for the chemical, pharmaceutical and food industries cannot continue production. More than ever before, electronic and digital technology is required to expand renewable energy production and foster electrification in order to become less dependent on fossil fuels.
The most significant markets for businesses in the electronics industry are, listed alphabetically, buildings, components, consumers, energy, health, industry and mobility. Digitalisation and electrification are extremely significant factors and play a role in every sector. It is technologies created by the digital and electronics industry that make it possible to increase growth potential in all these markets. In this respect, the electronics and digital industry is well positioned from a structural perspective. This provides a boost to the industry, but we must not forget there are still serious economic challenges to overcome.