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German supply industry in recovery but mixed signals from customers

The economic outlook for the supplier industry is brightening noticeably. At the same time, signals from the vehicle manufacturing industry, the most important customer sector, are dampening expectations. It is becoming increasingly clear that the German supplier industry is at the heart of the industrial structural change aimed at decarbonising society, says Claudia Schmidt, Wirtschaftsverband Stahl- und Metallverarbeitung eV (WSM).

After the pandemic-ridden previous year, the start of 2021 was of existential importance for the entire supplier industry. The recovery – as of the end of the first quarter of 2021 – is clearly reflected in the suppliers’ business climate: in all segments of the German supplier industry, the current business situation has improved across the board. The momentum is comparable to the recovery after the financial crisis in 2009. At the same time, the business outlook for the next six months increased. The last time suppliers were more optimistic was in February 2011. Nevertheless, the signals from customer sectors are extremely mixed. The vehicle manufacturing industry continues to send out stalling signals due to supply problems for electronic components. The originally optimistic forecasts of the automotive manufacturers for 2021 are unlikely to be maintained. As a result, forecast revisions are also expected on the supplier side. By contrast, mechanical engineering, the second most important customer sector, has regained momentum. Here, upward revisions of the originally rather conservative expectations are likely.

The structural change towards the decarbonisation of society has also long since reached the supplier industry. In a highly uncertain economic environment, supplier companies, some of which are very small and medium-sized, are having to make expensive investment decisions. Climate protection is a key issue of our time, which must be prioritised with ambitious and achievable goals. The supplier industry is committed to the Paris climate targets. However, the CO2 reduction targets set by the legislator must also be based on technical feasibility. The focus of action must be on the implementation of the targets in the individual sectors from the outset – in dialog with the industries concerned – and the resulting consequences must be specified precisely and transparently. Any political regulation and support, also in the European Union, must be open to technology. The free-market principle that the best technical solution must develop and prevail in competition among technologies to achieve political goals, leads to innovations that are actually used in large numbers without state support. By contrast, state dirigisme and technology bans conceal the danger that the wrong paths will be taken and that goal-oriented optimisations will not be able to come to fruition. The requirements of the new Euro 7 emissions standard must be based on technically and economically achievable progress. Just like electric drives, internal combustion engines powered by e-fuels, for example, can also make a valuable contribution to achieving climate targets.

This is also and especially true with regards to timeframes. Development processes can make unexpectedly rapid progress or be subject to obstacles and delays. It is not responsible to acutely endanger secure existing jobs in the industrial SME sector in the hope of creating new jobs in the future. Therefore, monitoring is essential in achieving climate targets, including the consequences to be expected as a result of implementation. Medium-sized supplier companies will not be able to manage the transformation on their own, moreover they will need support from special subsidy programs tailored to medium-sized companies. CO2 emissions can be reduced, for example, by changing the energy supply or new production processes. To this end, the necessary site conditions must be created and resources made available. The state should provide unbureaucratic grants for this purpose. Research and development along the entire value chain, e.g. in the areas of mobility, green hydrogen and alternative fuels, must be consistently pursued. Key technologies, such as in drive technology, materials research, microelectronics, power electronics, battery technology and networking and digitisation in vehicles, must be further developed. After all, we are talking about over one million employees in around 9,000 companies.

Wirtschaftsverband Stahl-und Metallverarbeitung eV (WSM) is an industrial business association in Germany working with a number of technical sectors.

Business Climate Supplier Industry – March 2021

According to the Ifo Institute, the current business situation is continuing to recover in all segments of the German supplier industry. The seasonally adjusted balance of positive and negative assessments has increased by a significant 10.0 points, reaching a new level of 23.6 points. At the same time, the business outlook for the next six months is also rising. The seasonally adjusted balance for this in March is 23.0 points – an improvement of 5.0 points compared with the previous month.

The Supplier Industry Business Climate Index is calculated by the ArGeZ Supplier Industry Working Group in collaboration with the Ifo Institute, Munich. It is based on a survey of around 600 companies and covers the foundry industry, aluminium industry, plastics processing, steel and metal processing, non-ferrous metal industry, rubber industry and technical textiles, all of which are members of the supplier industry working group.

Source: ArGeZ and BDG – Association of the German Foundry Industry