Adrian has been conducting research on, and managing teams of analysts covering, the technology industry for over 20 years. He has pioneered many data analysis techniques and methods that are used widely by analysts today, as well as having created frameworks for measuring numerous technology markets from industrial automation products to semiconductors.
The COVID-19 pandemic has had a devastating effect on global economies. Germany has been considered to have had a ‘good’ coronavirus crisis. Consistent and well-applied government measures, notably regarding lockdown and contact-tracing, appear to have stemmed the spread of the virus, with the result that infection and death rates have been low compared with other developed countries. But on the economic front, whilst the impact of the virus on the domestic consumer economy may have been less bad than in other countries, the story is very different for export and import markets.
The Covid Shock to Exports Plunges Germany into Recession
Germany is an engineering and manufacturing powerhouse. The economy is uniquely dependent on these sectors, and much of that output goes for export. Moreover, Germany is a net exporter, and many of its manufactured goods go to markets which have been severely hit by COVID-19. A significant 8.9% of total exports go to the USA, and 8% go to France, while China takes 7.2%. The UK comes in 5th, taking 5.9% of total German exports. Key exports are machinery, including components and machine tools, which account for 17.5% of total German exports, and vehicles, occupying 16.4% of the market. There has been a double-whammy here for Germany, and the country is now facing its deepest recession since WW2. Lockdowns and supply chain failures shut down much of the country’s manufacturing at the height of the pandemic. For example, in 2020, automotive production in Germany was down 28.2%, while machine tool production was down 30.3%. This is because, as the German economy has tried to get back on its feet, demand for automotive and machine tool products from big export markets such as the US has remained severely depleted, as these countries continue to battle with the virus and investment in new capacity has withered and individual disposable income has been hit. Exports to France and the USA have seen a COVID-induced slide of 48% and 36% respectively. It is going to take some time for these markets to recover, and the longer it takes for that to happen, the longer the German economy will remain depressed. This will have an impact on markets that are themselves dependent on exports to Germany, notably hitting East European countries.
German Exports and East European Manufacturing Output: The Knock-On Effect
The importance of Germany as an export market for East European countries cannot be understated. Our latest figures indicate that 9 out of 14 of these countries, and we include Turkey and Greece in this grouping, have Germany as by far and away their biggest export market. The Czech Republic, for example, sees 31.8% of its total exports going to Germany, of which vehicles and machinery, including components and machine tools, make up 40% of that market. These are seriously significant figures. 27.7% of Hungary’s exports go to Germany, of which nearly a quarter are electrical machinery and equipment, whilst 27.6% of Poland’s exports are Germany-bound, of which over 35% comprise machine tools and components, vehicles, and electrical machinery. Germany imports 9% of Turkey’s total exports, over a quarter of that being vehicles and machinery. But as COVID-19 has stymied Germany’s export market and, as a result, stalled the economy, demand for goods from Eastern Europe will be reduced, and this will have an impact on those countries’ output, together with the damage already wrought by the virus on East European manufacturing. Our projections for 2020 and beyond, based on information our analysts have gleaned from industrial strategists and planners in our target East European countries, bear this out.
We anticipate in 2020, for example, that manufacturing output in the Czech Republic will be reduced by 19.4%, whilst Turkey’s will drop by 16.4% and Hungary’s by 13.7%. Germany itself will see a 12.3% contraction in output in 2020, and then will make incremental increases of 5.2% and 5.9% in 2021 and 2022 respectively, small by comparison with the 16.9% and 11.9% increases in output in the two years following the depression of 2009. But as German output slowly recovers, the economy mends, and the demand for imports grows, there will be a revival in fortunes in east European countries, as our projections suggest. For example, we forecast an increase in output in the Czech Republic of 10.5% and 6.2% in 2021 and 2022 respectively.
The point to be made here is the close tie-in between the health of the German economy, and output in many East European countries. Not to labour the cliché too much, especially in this COVID era, but when Germany sneezes, Eastern Europe does indeed catch a cold.