The effects of the COVID 19 pandemic are now clearly to be seen in the sales of Electronic Components through Distribution in Europe. In the first quarter of 2020 sales were affected as the virus disrupted the supply from China before the great European shut-down hit sales at the end of March. In the second quarter the full effect of three months of disruption not only in Europe but throughout the world is evident. As European countries attempt to get their economies moving again, the summer period and concerns of a second wave continue to reduce any expectation of a drastically better picture in the third quarter. By Aubrey Dunford
The Economic slowdowm
Although the global economy was continuing to slow as we entered the first months of 2020 the effect of COVID 19 has led us into unprecedented areas and any attempt to look at historical trends are pointless. The European Electronic Components Distribution Market declined as shown by the Q2 2020 European Electronic Components Statistics. Billings measured across Europe in Q2 2020 were 15.4% lower than in the same quarter of 2019. In all countries the seasonal pattern is for the first quarter of the year to be higher than the second but in 2020 the second quarter billings have been 12.9% lower than in the first quarter. Although the real effect of the European shutdown came only in the last weeks of the first quarter, there was already disruption in the supply chain as the effects of the lockdown in China were being felt. However, the second quarter reflects a complete three months of global economic downturn. Bookings were 26.2% lower in the second quarter compared to the first quarter of 2019 and 14.1% lower than in the second quarter of 2019.
Another sign of the downturn can be seen in Graphic T1. The book:bill ratio having been falling for 7 successive quarters improved in the last quarter of 2019 and in the first quarter of 2020 has rose past unity to 1.05. However, in the second quarter the ratio has dropped again to 0.89. With the continued slowing of the global economy the supply/demand had come back into balance and companies had adjusted their stock levels to lower levels and were starting to place orders more in line with demand and hence the improvement in the book:bill ratio. However, as expected the COVID 19 situation killed that hopeful sign in the second quarter of 2020, and we have to expect dramatic downturn in the market will continue into the third quarter of 2020. As indicated in the economic outlook below the effects of the virus are likely to be severe and it is difficult to predict any clear view on the market for the remainder of 2020 but it does now seem that there will be no real return to growth until 2021.
Covid-19 Crisis: more severe economic fallout than anticipated
According to the International Monetary Fund’s World Economic Outlook (WEO) published in June 2020 – “Global growth is projected at –4.9 percent in 2020, 1.9 percentage points below the April 2020 forecast. The COVID-19 pandemic has had a more negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 percent. Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-COVID-19 projections of January 2020”.
The European economy situation
The Euro area economy collapsed at a record-breaking pace in the second quarter as severe shutdowns closed businesses and hammered the labour market. In Q2, GDP dived a seasonally adjusted 12.1% from the previous quarter, following Q1’s 3.6% drop, according to a preliminary estimate released by Eurostat on 31 July. The economy thus contracted at the sharpest pace since the series began in 1995 and broadly matched expectations of a 12.0% fall. Compared with the same quarter of the previous year, seasonally-adjusted GDP plunged 15.0% in Q2, following Q1’s 3.1% decline, also marking the worst reading on record. The historic contraction came on the back of frozen business and household activity as the full effect of lockdowns adopted by governments to contain the pandemic was felt. In terms of individual countries, Spain’s economy collapsed 18.5% over the previous quarter; France’s GDP tumbled 13.8%; Italy’s already-ailing economy slumped 12.4%, although beat market expectations of a 15.0% crash; while Germany’s GDP contracted 10.1%. Taking the year as a whole, economic activity is set to be hammered as the pandemic disrupts supply chains, hits tourist flows and suppresses both domestic and external demand. In addition, the outbreak could exacerbate the fragilities within those banking systems which are burdened by a high stock of bad loans and could also strain debt sustainability in countries with heavy public debt-to-GDP ratios. That said, the recently approved EU recovery fund should reduce the risks of financial turmoil.
IDEA: the electronic components market in Europe
The book:bill ratio for semiconductorLooking at the data from the Q2 2020 European Electronic Components Statistics we can see:
Market declines continuos
As can be seen in Graphic T3 there has been decline in billings (sales) Q2 2020 over Q2 2019 in all countries except Switzerland, so for Europe as a whole, the decline was 15.4%. Europe’s largest market, Germany, declined by 22.1%.
The figures shown in Graphic T2 show that bookings in Q2 2020 were overall 14.1% lower than Q2 2019. As with the billings there was a decline in all countries except Switzerland.
Quaterly Sales by Product Family
The trend for the book:bill ratio is slightly different from the other two product categories. The ratio has been As we do each quarter, we look at the booking and billing trends by product and regional market.
The book:bill ratio for semiconductors shows the same pattern as for the total components with 7 quarters with the ratio declining but then increasing in the fourth quarter of 2019, in the first quarter of 2020 passing back into positive at 1.06 before dropping down to 0.87 in the second quarter. This picture within the semiconductor market in Europe continues to be consistent with figures from other sources showing the slowdown in the global market but as the pandemic continues around the world hope of a quick upturn are fading.
Billings in Q2 2020 were 12.6% lower than in Q1 2020 and 15.6% down compared with Q2 2019.
In the Passives Sector the book:bill ratio having been positive for nine consecutive quarters, dropped to 0.86 and 0.85 in the first three quarters of 2019 but then rebounded nearly to unity in the last quarter of 2019 and having improved slightly in Q1 2020 passing back past unity, dropped back to 0.83 in the second quarter. Passives are showing the same general picture as semiconductors with sales in Q2 2020, 15.5% lower than in Q1 2020 and 19.4% lower compared to Q2 2019. The largest decline was in Germany of 30.2%.
E-Mech and Other Components
For E-mech, the book:bill ratio is slightly different from the other two product categories with the ratio being more stable. Although there was a decline in the first quarter of 2019 the ratio was only just below unity at 0.97 and dropping to 0.94 for both the second and third quarters. It then went back past unity to 1.05 in the last quarter of 2019, rising slightly further to 1.07 in Q1 2020 before dropping back to unity in the past quarter. This confirms the much more stable nature of this sector compared to semiconductors.
Overall, there was a fall of 12.5% in billings in the second quarter of 2020 compared to the first quarter of with all countries. Bookings decreased overall by 18.7% compared to Q1 2020 and decreased by 6.9% compared to Q2 2019.