- Decrease in Demand for Electrical Sector Orders
Title: A Challenging Year for Germany's Electrical and Digital Manufacturers: Fewer Orders, Less Production, Less Turnover
Germany's electrical and digital manufacturers had a rough year in 2024, ending with a 9.6% decrease in orders, according to the industry association ZVEI in Frankfurt. The holiday season was particularly tough, with companies recording a staggering 19.5% decrease in orders compared to the previous year. This decline was roughly twice as high as the average of the previous eleven months, and domestic orders suffered more significantly than those from abroad.
Currently, only a small fraction of electrical companies (14%) are grappling with a skilled labor shortage, while 10% are battling material scarcity. However, an alarming 54% of companies are struggling with a lack of orders, as reported by ZVEI's chief economist Andreas Gontermann.
Looking ahead, the industry expects a further decrease in production in 2025. The production of electrical and electronic goods "Made in Germany" decreased by 9.1% in 2024, after adjusting for price effects. According to ZVEI's current forecast, production is expected to decrease by 2% in real terms in 2025.
The slump is also evident in the industry's financial figures. With preliminary figures showing a 6.2% decrease in turnover compared to the record high of 2023, the sector closed the year with a total turnover of 223.2 billion euros.
Causes of the Slump
While cyclical factors contribute to the decline, structural issues also play a significant role. The German electrical and digital industry is grappling with high bureaucracy and overregulation, which hampers competitiveness. The annual cost of bureaucracy is over 65 billion euros, and an efficiency turnaround is needed to reduce the burdens [1].
Retailers' tactical purchasing behavior has led to supply bottlenecks, primarily for semiconductors. Older semiconductor generations, such as logic chips, analog chips, and MEMS, are in high demand, leading to significant delivery delays of around 5 months for semiconductor components [5].
The industry is also dealing with an acute shortage of qualified specialists. With 100,000 electrical engineers needed in Germany alone over the next decade, the shortage is restricting growth and innovative strength [5].
Rising energy costs and stricter environmental regulations are forcing the industry to develop more sustainable and energy-efficient solutions. Both production processes and products are affected [5].
The increasing networking of systems necessitates higher cybersecurity requirements. The new EU Cyber Resilience Act (CRA) presents additional regulatory challenges for companies [5].
As the industry navigates these challenges, it will be critical to find solutions that balance the need for innovation, competitiveness, and sustainability.
Sources:
[1] ZVEI (2024). High levels of bureaucracy and overregulation. Retrieved from https://www.zvei.org/en/topics/policy-and-legislation/policy-and-legislation-overview/policy-and-legislation-compilation/high-levels-of-bureaucracy-and-overregulation/
[5] ZVEI (2024). Challenges facing the electrical and digital industry. Retrieved from https://www.zvei.org/en/topics/information-and-market-analysis/market-research-and-analysis/challenges-facing-the-electrical-and-digital-industry/
Despite the challenges faced by Germany's electrical and digital manufacturers, there's a call for initiatives to bolster the industry within the context of the Economic and Monetary Union. The ongoing slump in production and turnover necessitates measures that can boost competitiveness and foster growth.
In light of the European Union's plans for the Economic and Monetary Union, it's crucial for Germany to address its structural issues, such as high bureaucracy and overregulation, to remain competitive and seize potential opportunities.
