UniCredit Bank Austria Industry Report
Electrical industry remains on growth track for 2023
- The electronics sector, part of the electrical industry, ended 2022 with record sales growth of 24% and anticipates stable growth again in 2023
- The 2023 performance of the electrical engineering sector, likewise part of the electrical industry, is set to significantly undershoot the outstanding 14% growth seen last year
- The successful specialisation of the entire electrical industry in capital goods segments ensures high global market shares averaging 1–2%
- Considerable expenditure on research plus the wealth of innovative companies underpin the competitiveness of the entire electrical industry
Both sectors of the Austrian electrical industry – electronics and electrical engineering – are growing faster over the long term than the industrial sector as a whole, and faster than the comparison sectors in the rest of Europe. Even in 2022, there was significant consolidation of the growth advantage in the electronics sector, with sales up by 24% compared to average growth of 14% for the EU as a whole. Sales in the domestic electrical engineering sector, meanwhile, increased at roughly the same rate as the EU average, with growth of 14%.
"Although the 2023 performance of both sectors of the electrical industry in Austria will significantly undershoot the excellent results seen in the previous year, both the electronics sector (buoyed by the thriving automotive business) and the electrical engineering sector (which benefits from investment programmes in new energy technologies) can expect further growth. Looking at the long term, the electrical industry is well positioned thanks to its competitive strength", says UniCredit Bank Austria Economist Günter Wolf.
Electronics sector closes 2022 with record results and anticipates stable growth in 2023
In 2022, sales in the electronics sector were up 24% to EUR 12.2 billion. Of this figure, EUR 3.7 billion was attributable to optical devices and medical and measurement technology, and around EUR 750 million was attributable to telecommunications and IT equipment plus consumer electronics. In Austria, the sector's economic focus is the production of electronic components and printed circuit boards, to the tune of EUR 7.8 billion.
In the first quarter of 2023, growth rates in production and incoming orders in the electronics sector slowed somewhat but remained in the double-digit range. The optimistic production and export expectations reported by companies in their recent feedback in April suggests that further stable growth is anticipated. The confidence that companies feel about the immediate future is also reflected in the high employment growth of 8% seen in the first four months of 2023, which would likely be even higher if there were no labour shortages. In the second quarter, 28% of companies cited the lack of qualified employees as a major obstacle to production – a figure this high has not be reported since 2008.
The economic outlook for 2023 has deteriorated due to the weak economic development in Europe and major non-European markets for the electronics sector. Semiconductor manufacturers are likewise experiencing a lack of demand – globally speaking, the consumer goods sector is particularly affected. That said, the thriving automotive business of domestic electronics suppliers is unlikely to lose much momentum. All in all, sales growth in the Austrian electronics sector for 2023 looks set to match the average 5% sales growth achieved over the last 20 years.
Electrical engineering sector set to significantly undershoot last year's outstanding figures in 2023
As with the electronics sector, manufacturers of electrical equipment supply products that are essential for technological megatrends, e.g. generation and storage of renewable energy, increasing the energy efficiency of various sectors of the economy, electromobility and the expansion of digital networks. The sector has grown rapidly in recent years, with sales in 2022 growing by around 14% to EUR 15.2 billion and all major segments posting strong growth. Manufacturers of electric motors, generators and other electrical equipment benefited mainly from the sharp increase in capital expenditure in the e-economy, and manufacturers of household appliances and electrical installation materials benefited from a construction economy that remained buoyant in 2022.
During the first few months of 2023, the outlook in the electrical engineering sector has clouded. The production expectations most recently reported by companies, in April, have become significantly more pessimistic due to the weak order situation. The available economic indicators suggest that the sector will even fail to achieve the long-term sales increase of 4% in 2023. The investment-related electrical engineering segments can at least expect the economy to recover as the year progresses, provided the economic uncertainties dissipate and energy becomes cheaper. Demand is likely to come from the announced public investment programmes, many of which are aimed at promoting new energy technologies and energy efficiency measures (e.g. the municipal investment programme in Austria, KIP 2023, and the EU's Net Zero Plan presented in February).
Successful specialisation in electrical industry capital goods sectors generates high global market shares
The electrical industry's export successes demonstrate the particular competitive strength of electrical engineering capital goods from Austria. It was not until 2021 and 2022 that the foreign trade balance deteriorated due to strong import growth in this area. In some cases, domestic companies were unable to keep pace with the additional domestic demand for electric motors and generators in particular, and also for wind turbines and electric vehicle equipment. Despite higher exports, a foreign trade surplus in the region of almost EUR 500 million in 2020 became a deficit of EUR 360 million in 2022. In addition, high global market shares averaging 2% underscore the competitiveness of domestic manufacturers in this area. Overall, Austria's electrical industry accounts for 0.6% of global exports.
Austria's electrical industry also achieves ongoing export surpluses and above-average global market shares of between 1% and 2% with medical and measurement technology and with transformers (such as inverters for photovoltaics systems) and other power distribution equipment. In 2022, the export surplus generated by the products of these sectors was EUR 940 million.
The foreign trade surplus for electrical capital goods is offset by a deficit of EUR 3.9 billion for computers, telephones and consumer electronics products. The background to this that despite the often high level of technological intensity, the products are often sold above price, with low-cost production in large quantities now an essential competitive factor.
Considerable expenditure on research plus the wealth of innovative companies underpin competitiveness
The fact that producer prices among electronics manufacturers have increased by 7% in Austria since 2008 while falling by 6% on average within the EU underscores the successful specialisation of the sector in high-quality and therefore less price-sensitive products. Not only has this strengthened the positive foreign trade balance, e.g. with measuring instruments and medical technology, it has also prevented higher deficits in other segments, such as semiconductors.
In the electrical engineering sector, producer prices in Austria have risen by 10% since 2008. This rate is somewhat slower than the EU average of 23%. However, the higher growth in production in the same period and the high global market shares in some areas underscore the competitiveness of the sector.
The economic success of both sectors is based on numerous companies that are invested in research and strong on innovation. The R&D allocations in the Austrian electronics and electrical engineering sectors are among the best in Europe at 12% and 6% respectively. In addition, 83% of companies in the electrical industry as a whole are actively innovating, according to 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 the Scandinavian countries and in Germany.
"Overall, Austria's electrical industry not only fulfils the structural requirements for successfully tackling the high level of import pressure and the stagnating demand in certain segments, but is also in a position to safeguard its competitiveness over the long term. As one of the most innovative, research-focused sectors in Europe, the electrical industry is certainly well equipped to deliver product innovations in the globalised market and thus create new growth opportunities for itself", says Wolf in conclusion.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0) 5 05 05-41954
Email: guenter.wolf@unicreditgroup.at