Germany Sector report
Sectors @ a glance
Industry performance outlook
Construction/ Const. Materials
The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.
Remains Fair Agriculture is impacted by tighter environmental regulations and low sales prices due to high pressure from processors and retailers. As a result of the coronavirus outbreak, the sector has been additionally affected by the first lockdown (e.g. lack of foreign seasonal workers and/or additional costs caused by tighter health care regulations for said workers). Additionally, the third dry summer in a row negatively affected the crop harvest, which has hurt farmers with livestock breeding (shortage and/or higher prices for animal feed). Agriculture value added is forecast to contract by about 3.5% in 2021.
Remains Poor In 2020 automotive producers and suppliers suffered from globally deteriorating sales for passenger cars and commercial vehicles, which has led to severe liquidity strains and cash shortfalls. Margins were already under pressure before the coronavirus outbreak, due to disappointing sales in 2019 and increased investment intended to cope with the shift away from combustion engines and towards e-mobility. Despite a rebound since H2 of 2020, domestic production and new car registrations decreased 25% and 19% respectively last year. The impact of the slump on businesses´ liquidity has been mixed so far. The large availability of government support and loans has had a positive impact. However, these loans are usually short-term and require linear repayment, which means that businesses have to hold available liquidity at short notice. While the automotive market is expected to rebound further in 2021, this recovery is expected to remain modest for the time being, with growth not compensating the losses seen in 2020. It is expected that insolvencies among suppliers will increase in 2021 after the expiry of the current suspension of insolvency filing obligations.
Remains Fair Compared to their peers in other sectors, chemicals and pharmaceutical businesses have weathered the repercussion of the pandemic well. Most businesses remain financially resilient, and the credit risk situation remains benign. Chemicals value added is forecast to rebound 4.5% in 2021 after a 5% estimated contraction in 2020. Higher demand for hygiene articles, packaging materials, and pharmaceutical products and packaging materials has positively affected production. Pharmaceuticals value added is forecast to grow 5% this year.
Remains Fair After performing well over the past couple of years, businesses have been affected by supply chain problems, postponement of projects and reduced order volumes due to the coronavirus impact and subsequent lockdowns. Industrial construction volume decreased 1.5% in 2020, and in 2021, another 4% contraction is anticipated. Public construction volume increased 0.5% last year, forecast to decrease 4% this year. However, residential construction was least influenced by reduced orders due to the pandemic. Volumes increased 2% in 2020 and are forecast to grow 1% in 2021. In the construction materials sector, increased household activity in refurbishing, modernising and expanding homes resulted in notable increases in turnover for the building trade, timber trade and DIY segments. Construction materials value added is forecast to increase by about 4% this year.
Remains Poor Digital transformation poses a major challenge for the sector, as changing consumer behaviour is increasingly putting stationary retailers under pressure. In 2020 private consumption of non-food consumer goods showed inconsistent development in the various segments. While sales of furnishings, household appliances and building supplies developed well, sales of textiles, clothing, shoes and leather goods deteriorated steeply. Smaller brick-and-mortar retailers, which are less competitive and, in turn, less economically stable, are in particular need of fiscal support to survive the current pandemic. So far, no increased payment difficulties have been observed, but the impact of the current second lockdown remains to be seen. Currently, retail added value is forecast to rebound by less than 1% in 2021 after an estimated 1.5% contraction in 2021.
Remains Fair The credit risk of ICT businesses remains moderate, with a relatively stable business performance. In H1 of 2020 sales deteriorated due to the temporary closure of businesses resulting from the lockdown, and supply chain disruptions had an additional negative impact. However, spending from businesses, employees and schools on digital goods and services has increased due to the sharp rise of remote working and digital learning. ICT value added is forecast to grow by almost 4% in 2021.
Remains Good The sector remains relatively robust. However, increased financial troubles for businesses and consumers due to the economic downturn could lead to more loan defaults for banks and tighter lending conditions in the future. Finance value added is forecast to level off in 2021.
Remains Fair The German food retail market is the most competitive in Europe, with low market prices due to the overwhelming power of the leading food retailers and discounters. With food processing companies and retailers demanding longer payment terms from their immediate suppliers to improve their working capital, a wave of longer payment terms is being created along the whole supply chain.
Food producers and processors supplying hotels, restaurants, canteens, catering, etc. are severely affected by the lockdown measures. On the contrary, suppliers to the food retail sector have been generally less affected, sometimes even benefitting. The meat processing industry is affected by new legal requirements regarding the employment of temporary workers. In combination with the reduction and temporary closure of slaughter capacities, livestock has piled up in the production chain, causing an additional drop in prices.
Due to the extension of government schemes and as a result of the still ongoing lockdown, the final consequences for the credit risk of many food businesses remain to be seem, especially in the hospitality and food supply segments.
Remains Poor The highly export-dependent Germany machinery sector suffered from deteriorated global demand in 2020, with a major decrease in orders and production. A slowdown already started in 2019 due to increased trade disputes worldwide. After shrinking 2% in 2019, engineering value added is estimated to have contracted again in 2020 by more than 15%. Increasing orders since November 2020 indicate a recovery in 2021, and value added is forecast to rebound by about 10% in this year. However, a comprehensive rebound depends on a fast recovery of the global economy and the performance of key buyer sectors like automotive. Due to the persisting downside risks in the current economic environment, a noticeable increase in insolvencies is still expected in 2021.
Remains Poor After a weak performance in 2019, with overcapacities, fierce competition and high pressure on margins, the situation in 2020 for the metals sector further worsened due to the economic downturn triggered by the coronavirus pandemic. Many businesses have recorded weak results, strained liquidity and high gearing. Mainly affected are small and medium-sized businesses, particularly automotive suppliers and foundries, while companies with customers in the construction sector have been less impacted. Despite an improvement over the last couple of months, the situation of the sector remains poor, mainly due to a steep increase in raw material prices. A real rebound is expected in H2 of 2021 at the earliest, assuming that the pandemic will be under control by then. Metals business insolvencies are expected to increase by 5%-10% in 2021.
Remains Poor Paper producers and downstream industries, such as paper wholesalers, have been particularly impacted by less demand due to lockdown measures and the ongoing digitalization. The performance of the publishing and printing segment, which already suffered before the pandemic from ongoing consolidation and decreasing demand, deteriorated further in 2020. In contrast, producers of packaging paper benefit from increased demand from e-commerce and food retailing. Overall, value added of the paper industry is estimated to have decreased by 6.5% in 2020. It is expected that payment delays and insolvencies will increase in 2021, mainly in the printing subsector and related segments.
Down from Poor to Bleak Due to the lockdown measures, many segments have suffered heavily, especially hotels and catering, restaurants, bars, entertainment and cultural events, fairs, airports, bus cruisers, tourism, travel agencies and tour operators. Hotels and catering value added is estimated to have contracted 34% in 2020. The second lockdown since November 2020 has had a particularly significant negative impact on the service sector. Services value added is estimated to have contracted almost 6% in 2020, forecast to rebound 3% in 2021. Currently, it cannot be ruled out that payment delays and insolvencies will sharply increase after the phasing-out of stimulus measures and the expiry of the current suspension of the obligation to file for insolvency. A comprehensive rebound will only be achieved after the vaccination of a large part of the population.
Remains Poor In 2019 the downturn in the domestic automotive and machinery sectors already started to seriously affect the performance of many German steel suppliers, while exports were impacted by subdued global demand. Many steel businesses have suffered from higher transport, labour and energy costs, along with overcapacity and strong competition. Pressure on margins has increased in an industry where many businesses have already shown low profitability in the past. In H1 of 2020, sales and business results deteriorated sharply due to the economic downturn triggered by the coronavirus pandemic. Steel businesses have adjusted their capacities accordingly. As demand increased again since summer 2020 and production capacities were not sufficient, steel prices increased significantly. However, a comprehensive rebound is expected in H2 of 2021 at the earliest, given that the pandemic is contained by then. Currently steel value added is forecast to rebound 12% in 2021 after an estimated 18% contraction in 2020A small increase in steel business failures can be expected over the course of this year.
Remains Bleak Textile value added is forecast to rebound only 3% in 2021 after an estimated 13% contraction in 2020. Producers, wholesalers and retailers already suffered before the coronavirus outbreak from fierce competition and thin margins and have been additionally impacted by deteriorating sales due to the lockdown. A comprehensive market consolidation is expected. Additionally, the large technical textiles segment is negatively affected by lower demand from the automotive industry. Textile suppliers and retailers have been severely affected by the second lockdown since November 2020, as stock value is still high and cannot be easily sold (online textile retail accounts for only a fraction of normal sales value). This will trigger liquidity issues for many businesses, and insolvencies are expected to increase substantially in 2021.