Challenging situation in the MET industries

We are experiencing challenges in MET production due to labour shortages, lack of materials, and weak demand. Broadly speaking, manufacturing performance has been disappointing in the countries which make up the MET sector. However, it must be acknowledged that it is a varied picture across the Ceemet membership. Despite growth being driven by some sectors, overall sentiment is cautious, with certain sub-sectors experiencing recession. Principle among these challenges is a lack of demand which is the key current challenge for the MET industries. Across many economies, consumer confidence has stalled, impacting purchasing behaviour, which is further compounded by rising interest rates. While this is more than likely a problem which will subside in time, the impact on our sector currently is real and acute. Those high interest rates affect companies also, creating a major concern for the supply of credit. Mix this with inflation that remains stubbornly above its long-term average, and we see a worrying financial environment for companies.

Labour market challenges

Despite having been superseded by weak demand in the short-term, labour shortages remain one of the key challenges for the MET industries, with vacancy rates continuing to cause issues. Having said that, there is a slight upward trend observed in employment in some Ceemet member countries. Despite the weak demand affecting employment, a stable employment trend is expected. As readers are undoubtedly aware, Europe is grappling with the effects of an aging population and declining birth rates, resulting in a shrinking workforce. This demographic shift presents a significant challenge for manufacturers as they struggle to find skilled labour. Compounding this issue is the retirement of experienced workers and difficulties in attracting younger individuals to pursue STEM and vocational education. These factors collectively exacerbate the already challenging situation faced by MET manufacturers.

A globally competitive MET sector

Geopolitical tensions and global competition continue to heavily influence business outlooks and decision making. Firms are understandably cautious about expansion and investment decisions due to their competitive position in a highly globalised world and the ongoing uncertainty globally. Despite having seen a 6% increase in exports in value terms in the MET sector in 2023, vis-a-vis 2022, exports are a mixed picture among the membership.

Following decades of over-regulation, we are beginning to witness an increase in the pressure to ensure competitiveness in the EU. It is imperative that we seize this opportunity to deliver tangible benefits for companies who have been inhibited by growth-hampering and inappropriate legislation.

For too long, Europe has lagged in the global race for innovation and investment. With the formation of the new European Parliament and Commission, we have a critical opportunity to shift this trajectory.
We must prioritise policies that enhance business growth, foster innovation, and support digital transformation to maintain and advance our international competitiveness. Only through creating a business-friendly environment can we ensure the strategic investments that Europe needs to remain at the forefront of the global economy, providing prosperity and opportunities for employers and workers alike.

A future oriented MET industries

Nevertheless, despite the challenging scenario for companies, there are reasons for optimism. With some luck, weakened demand is a short-term issue and more positive financial conditions will return in the medium-term. Furthermore, European manufacturers are capable to adapt their strategies and turn challenges into opportunities. MET companies still contribute around half of the R&D spend for the whole economy and contribute the same amount to total manufacturing employment.

Europe’s MET industries will continue their innovative endeavours to combat the challenges facing our societies today, and in the future, all the while providing the high-quality, well-paid, jobs that support our European social and economic model.

Geopolitical tensions and uncertainty around long-term developments on inflation and interest rates are weighing heavily on companies and are negatively influencing the global economic outlook. Across the globe, it is a mixed picture with the US showing strong growth and China continuing to grapple with an economic slowdown. Broadly, European economies have just about avoided recession, but growth – where it exists – is minimal.

Despite its inflation, which is likely to be more persistent than in Europe, the US is set to continue its economic expansion into 2024 and 2025. If these forecasts hold true, Europe will continue to lag behind the US in terms of growth. This situation raises legitimate concerns about Europe’s ability to attract investment and remain competitive internationally.

In the second half of 2024, growth will be lower than expected in part also due to the sharp fall in consumer confidence. Despite these challenges, the sector might finish the year in a zero-growth environment, which showcases the resilience of our industries.

Sub-sector Analysis:

For the MET sector, it is a very mixed picture, with some sectors performing better than others.

  • Fabricated Metal Sector:

This sector has seen moderate growth driven by demand from other MET subsectors and the economy more broadly. The solutions necessary to achieve the green transition have also contributed to this growth. However, supply chain problems have created challenges with the sector being impacted by global supply chain disruptions, including shortages of raw materials and components. This has led to increased costs and delays in production.

  • Mechanical Engineering Sector:

Similarly, a shortage of raw materials, including metals and electronic components, have led to increased costs and production delays. Demand remains a challenge in this sector, despite high order backlogs in 2023. High levels of investment in the mechanical engineering sector are crucial, and if interest rates remain high, then investments will suffer leading to a negative outlook.

  • Automotive Sector:

The pace of electrification is still presenting challenges for this sector, including the need for significant capital investment and the need to ensure a stable supply of critical materials, particularly for batteries. If these investments do not materialise, this will lead to challenges in the long run. While the situation with the semiconductor shortage, has improved greatly compared to the peak of the crisis, the shortage is still well above historical averages. It has to be acknowledged that the EU has made great strides with
the Chips Act; however we must ensure that long-term investments continue to bear fruit. Furthermore, the transition within the sector is impacting employment. While new job opportunities are emerging, traditional roles are declining. There is a growing need for workforce reskilling and training to align with the new technological demands of the industry.

Cost of Doing Business

Investment activity has been subdued due to high financing costs and uncertainty in the sector, and the current tighter monetary conditions are affecting trade-intensive capital goods. Demand in the EU, which is already low, has been adversely affected by the post-pandemic supply chain reorientations and the change in purchasing demands from consumers. However, there is some optimism for a rebound in global trade, led by an increase in demand, which could support EU exports in the coming years.

Energy prices have increased significantly since 2020, however recent decreases have led to Europe’s energy situation stabilising somewhat. Gas prices have fallen below their recent peak due to reduced consumption and diversified supply sources. Oil prices were affected due to the current geopolitical tensions, they are lower than the recent past but could not be considered to be providing a boost to manufacturing due to their current prices. Base metal prices are under their peak and are currently fluctuating around pre-corona levels. Prices continue to be affected by the usual factors such as supply, financial markets and the actions of large players in the industry.

Wages and Inflation

Inflation has been easing less quickly than anticipated in Europe. The European Central Bank’s caution about reducing interest rates too soon is valid as it is important that inflation remains as much as
possible under control. If not, there is the potential to see increasing wage tensions in Europe, potentially leading to a wage price spiral, in turn increasing inflation further. Upward pressure on wages affects the competitiveness of the MET industries, particularly compared to other global regions.

Future prospects

Despite the mixed picture across our industries, we foresee a rather stable outlook for the sector. The sector should operate close to a zero-growth scenario. Despite labour market pressures easing in the
short-term, the labour and skills shortage remains a persistent challenge. Orders are decreasing, due to lack of demand, and although insufficient demand is a greater challenge than labour shortages in the short-term, this situation is most likely temporary.

On a positive note, the current scenario of decreased demand is most likely a short-term phenomenon, and our sector will return to providing the societal solutions we are renowned for, not least the solutions to realise the green and digital transitions.