Suppliers: Recession fails to materialise or not after all?

In February 2023, the business climate for German suppliers is positive again for the first time in a year. But beware: the improvement is due to a correction from last year, writes the supplier industry working group ArGeZ. The working group surveyed around 600 companies for this purpose.

Exhibitor discussion on a die casting part

At first glance, the business climate index of German suppliers shows a clear improvement: seasonally adjusted, it jumps from minus 5.2 points to plus 0.7 points. However, the improvement is merely based on a correction of last year's plummeting expectations from March to September, according to the Arbeitsgemeinschaft Zulieferindustrie ArGeZ. In view of the turbulence on the energy and raw materials markets, this is not surprising.

Tension and cautious optimism among suppliers

Looking at the current assessment of the business outlook on a six-month horizon, this is an improvement of almost twelve points compared to the previous month. Nevertheless, according to the consortium, the suppliers' expectations still contain a slight potential for recession. In addition, there is the current situation. Since summer 2022, the actually positive level of the situation assessment has almost halved (plus 16.2 points).

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The mood components formulated a month ago, tension and yet cautious optimism, remain. Nevertheless, caution is advisable if there is premature talk of a recession being called off. The economic mix is not yet balanced enough for that. According to ArGeZ, large parts of the suppliers in both the automotive and mechanical engineering sectors are feeding off order backlogs. Capacity utilisation is correspondingly high.

Plant investment on other continents

Order reach would melt away and strong impulses would be lacking. In addition, the construction industry is suffering from inflation-driven investment cuts. Added to this would be the locational disadvantages due to high energy prices. The effects: Large corporations would concentrate capital investments on other continents these days.

Investments that are already underway are in danger of being reduced, according to the working group. This mixed situation against the background of a failed energy price brake does not suggest a real upswing in the current year. A mild recession in the first half of the year is unlikely, but it has not yet been definitively called off.

Results of a survey of about 600 companies

The Business Climate Index for the Supplier Industry is compiled by the Arbeitsgemeinschaft Zulieferindustrie ArGeZ in cooperation with the Ifo Institute, Munich. It is based on a survey of about 600 companies and covers the foundry industry, aluminium industry, plastics processing, steel and metal processing, non-ferrous metal industry, rubber industry and technical textiles.

Graph describing the business climate in the supplier industry Germany from 2007 to February 2023 — The graph describes the business climate in the supplier industry in Germany. The red line represents the current situation. The blue line describes the expectations for the next six months. The data are seasonally adjusted, balance of positive and negative assessments.