UniCredit Bank Austria industry report on the electrical sector:
Electrical sector fast gaining momentum
Austrian electrical sector set to recoup 2020's moderate production decline of 2.1% in 2021
Austrian electrical sector weathers crisis better than European competitors
Successful specialisation in capital goods sectors creates export surplus of EUR 1.9 billion
Significant research expenditure and innovative strength keep sector competitive
Austria's electrical sector has been among the fastest-growing sectors in Europe for some years. In Austria, this sector closed the 2020 year of crisis with less pronounced losses than those seen in most major European manufacturing countries. Production output declined 2.1% in 2020, compared with an average of 3.5% in the EU. "In 2021, we expect the electrical sector in Austria to recoup the loss made in 2020, driven by a rapid increase in demand for new information and communication technology and public investment programmes that are being launched to absorb the negative economic consequences of the coronavirus crisis. The strong competitive position of this sector leaves it well placed to tackle the coming years", says UniCredit Bank Austria Economist Günter Wolf.
Recovery of sector economy in 2021 to offset relatively small decline in 2020
The two areas identified by Statistics Austria as belonging the electrical sector - namely electronics production and electrical equipment and devices production - both came through the economic crisis of 2020 relatively unscathed. Production in the industry had already declined slightly in 2019, due primarily to weak investment in information and communication technology (ICT) in the EU. In 2020, electronics production declined by 3.3% and electrical engineering production by 1.2% (with sales falling by 2.8% to EUR 7.4 billion and EUR 12.8 billion respectively). While the Austrian industry economy as a whole will need until at least 2022 to offset the overall drop in production of 7.4% experienced in 2020, the electrical sector is expected to recoup the 2.1% production decline in 2020 this year.
The public investment programmes to absorb the negative economic consequences of the coronavirus crisis are designed in no small part to promote new energy technologies, which in turn will boost demand for products from within the electrical sector. This sector can also expect to gain momentum from the recovery of corporate investments, which in the wake of the structural changes driven by the pandemic are increasingly directed towards information and communication technology.
Production output in the electrical sector was already beginning to increase by Q4 2020, and this growth continued into January 2021 (latest available data). Data from March shows that production expectations among electronics manufacturing companies have also become significantly more optimistic. In addition, the marked increase in incoming orders at the end of 2020 and 3% rise in employment in the first two months of 2021 signal sustained economic recovery. Electrical engineering companies were likewise feeling increasingly optimistic in the first few months of 2021. However, a return to somewhat more cautious production expectations in March indicates that recovery in this sector has not yet stabilised.
Successful specialisation in capital goods sectors creates export surplus of EUR 1.9 billion
The sector enjoys above-average long-term export success, particularly with products from investment-related segments. In 2020, an export surplus of EUR 933 million was generated from electric motors, power units, transformers and similar devices, and a further EUR 243 million from switches, connectors and printed circuit boards. The trade balance from batteries, lamps and electric vehicle equipment has begun to suffer from the sharp decline in vehicle electronics exports over the last two years, but in 2020 it was still in the black at EUR 281 million. Successful products for the domestic electrical sector include medical devices and measuring and testing equipment, which together contribute an increase of EUR 464 million to the export balance. In 2020, the export surplus in these goods categories was EUR 1.9 billion, compared with a deficit of EUR 3.5 billion for computers, telephones and consumer electronics (exports of EUR 3 billion and imports of EUR 6.5 billion).
Export successes in investment-related segments failed to prevent the loss of global market share by the Austrian electrical sector. Between 2010 and 2019, its share of the global export market for electrical machinery and equipment fell from 0.8% to 0.6%. This is because although information and communication technology in particular are among the most-sought-after export products in the world, ICT is often sold above price despite the high level of technological intensity. Cost-effective large-scale production has therefore become a crucial factor for competitiveness. Manufacturers have migrated away from high-wage countries, and the sharp increase in demand is largely covered by imports, as the high export deficit clearly shows.
However, the electrical sector in Austria has succeeded in achieving above-average shares of the global export market in some product areas, thereby demonstrating its competitiveness on the international stage. For example: automotive parts (2.7% in 2019), power generation and distribution equipment (1.8% to 2.8%) and in particular traffic monitoring and control equipment (the share of the global export market in this segment was 9.1%).
Significant research expenditure and innovative strength drive solid growth and competitive position
Growth in the Austrian electrical sector is outstripping that seen internationally. Production output in the electronics sector has grown by 61% since 2008, compared with an average of 1% within the EU. Production output in the electrical engineering sector has increased by 15%. Production in this sector within the EU has declined by 14%, primarily in the major manufacturing countries (Germany, France and Italy), where the sector posted significantly sharper declines than in Austria, especially in the 2009 and 2020 crisis years.
Export successes and the international growth advantage enjoyed by the Austrian electrical sector are the result of its strong competitive position, and indirectly confirm the relatively good prospects for many areas within the sector. One of the underlying factors here is a product portfolio with a disproportionately high value add, which in turn creates relatively stable product price trends and to some extent provides protection in the face of low-cost competition. Austria's electrical sector is at the forefront in Europe, with an average value add of 34% of sales. Two key elements of this high value add are the focus on research and the sector's strong track record of innovation.
As one of the most research-focused and innovative sectors in Europe, Austria's electrical sector is definitely well prepared for the future. Overall, companies within the electrical sector allocate 7.8% of sales to R&D and more than 86% of companies are "actively innovating" as defined by the European innovation survey. This figure has been among the highest in Europe for some years and in recent times has been only slightly lower than the achievements of electrical engineering and electronics companies in Germany (and the very small sector in Luxembourg).
"Export performance and the structural indicator trends show that Austria's electrical sector is not only meeting the structural requirements for survival in the face of the current conditions, the high import pressure and the stagnating demand in certain key segments, but is also shoring up its competitive position for the long term", says Wolf.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at