Germany 2021: High sales growth must not obscure different sector perspectives

The most important driver of economic development in 2021 is the overcoming of the Corona pandemic: "After what is expected to be a very weak start in the first quarter, increasingly positive growth momentum can be expected in most sectors of the German economy as the year progresses. However, despite rising production and higher sales, most sectors will not make up for the shortfall from 2020," says Axel Angermann, chief economist at FERI, summarizing the result of the economic forecast for the new year from a sector perspective. This is especially true for all providers of services whose use is connected with social contacts: The hospitality industry, for example, can expect a price-adjusted sales growth of about 17 percent in the coming year. But because that was preceded by a 37 percent decline in 2020, the industry's revenue still lags behind that of 2019 by 26 percent. So concerns about numerous bankruptcies in the sector are justified. The situation is similar for travel agencies and tour operators: because there will probably be less business travel than before even after the pandemic is over, and private long-haul travel will only gradually start up again, business in this sector will only return to normal in the long term. The revenue level of 2019 is unlikely to be reached again until 2024 at the earliest.

Digitization accelerated by Corona

Among the winners of the pandemic are the IT sector and related industries: Sub-sectors such as the digital technology trade or cable network line construction were already able to post a significant increase in sales in 2020, while demand for electronic components was relatively weak. The German manufacturers of such components do not have the currently sought-after memory chips in their product range, but are suppliers to capital goods manufacturers. The outlook for information technology services as well as data processing and the supply of web portals remains positive for 2021: a study by the FERI Cognitive Finance Institute recently highlighted once again how the Corona pandemic is acting as a catalyst for digital transformation. Many industries in the IT sector are benefiting.

Industrial production recovers slowly

Since the summer, German industry has been in the process of catching up, a process that has been slowed but not fundamentally halted by the renewed public shutdown. The fact that the level of industrial production in 2021 will still be 4 percent below that of 2019 is mainly due to the capital goods sectors that are important in Germany, especially the automotive industry. Irrespective of the pandemic, this is undergoing a profound structural change, which poses enormous challenges for suppliers in particular with regard to the 2 reinvention of their business models. Both mechanical and electrical engineering, as major suppliers to the auto industry, also remain well below 2019 production levels.

Retailers with mixed results

A lack of opportunities to spend money on leisure activities and travel has given the retail sector an exceptional 3.4 percent overall sales growth in 2020. As the pandemic winds down, however, business activity here will normalize, meaning that sales are only expected to increase by just under one percent in 2021. While stationary retailers are suffering not least from the new lockdown in the Christmas business, online retail is clearly one of the winners.

Construction activity declines

In the construction industry, the increase in sales in 2020 is primarily due to unusually good construction activity in the first quarter of the year. In the medium and long term, commercial construction is expected to decline due to the advance of home office activities, which will be masked for the time being by the processing of current orders. Overall, construction activity will contract in 2021 compared to 2020.

Table: Growth in Germany by sector