China slows down the electric and digital industry
The double-digit growth achieved by the global electrical and digital industry market in the previous year is expected to weaken to around 9% in the current year and then decrease significantly to 3% in 2024. The ZVEI sees this as a "certain normalization" that takes into account the "weak overall economic outlook." Nonetheless, Chief Economist Andreas Gontermann points out in an interview with Börsen-Zeitung that "complaints about a lack of orders are now increasing significantly." While in the recent past, "material shortages have become a problem for companies, weak demand is now taking over the spotlight," explains the industry expert. The current drivers are still the fields of electromedicine and energy technology, where growth rates of 11% are expected this year, followed by electronic components with +10%. However, in the coming year, growth rates of 4% and 5% are anticipated to be lower in these areas as well.
Setback to the business
A particularly significant blow comes from the weakness in the Chinese market, which accounts for "more than half of the global electronics production and 40% of the world market," emphasizes Gontermann. In the largest individual market of the industry, which reached a volume of 2.3 trillion euros in 2022, the ZVEI expects growth of 11% in the current year, but only 4% next year. Apart from the fact that the Chinese economy has not recovered from the effects of the COVID crisis as quickly as hoped, there are also structural problems such as the real estate crisis and a consumption climate dampened by inflation, which are tempering market growth there. Furthermore, according to Gontermann, it is important to consider that even in the pandemic years, China "stabilized the global market with relative strength while demand in Western countries was weak." Therefore, a catch-up effect has been observed, for instance, in the United States. Nonetheless, only a 1% increase is expected there in 2024.
Two countries on equal footing
As a market for German companies in the electrical and digital industry, the United States carries a weight similar to that of China, which is significantly stronger for the global market as a whole. "Exports of around 12.5 billion euros went to both countries in the first half of the year," explains Gontermann. In the previous year, exports to both countries were also roughly equal. However, exports to China in the first six months of this year decreased by 2.5% compared to the previous year, while exports to the United States grew by 14%. Exports to the rest of Asia also saw significant growth, with a 7% increase. The Asian market accounts for 62% of the global market and is estimated by the ZVEI to grow by 4% in 2024 after a 10% growth in the current year.
Diversification maneuvers in Asia
Gontermann recognizes "a certain awareness" among companies, particularly regarding supply security and the stability of supply chains, which demonstrated a vulnerability during the pandemic with the sudden inability to manufacture many products. Therefore, he believes that diversification maneuvers into other Asian countries are signs of a healthy diversification strategy. In this context, the association also welcomes the localization of production of key industrial products such as semiconductors in Germany.
Fundamentally, Gontermann believes that politically motivated decoupling or deglobalization have limitations. "The benefits of global trade are simply too great," he says, while also noting: "Subsidies, export controls, and bans on technology transfer lead to efficiency losses, but may have to be accepted in view of goals like supply security or national security to some extent." Nevertheless, the expert doubts the effectiveness of such measures, and reminds of the saying: "Trade is like water. It finds its way." No one can say, Gontermann notes, whether increased trade with other Asian countries is simply a detour to China.
Shortage of skilled workers significant
To strengthen activities in the domestic market, companies in the industry are facing problems that go beyond material shortages and energy cost increases. Having said that, companies are less affected by the latter. "We are not very energy-intensive," states Gontermann. While material costs make up more than half of the cost structure in companies, "a challenge is also the shortage of skilled workers." Out of the approximately 900,000 employees, 60% come from scientific fields known as STEM subjects (Science, Technology, Engineering, and Mathematics), where an exacerbated shortage also exists. Political countermeasures, however, take a long time to have an effect in this regard.