German mechanical engineering companies with muted expectations

In its current forecast, the VDMA anticipates a real decline in production of 2 per cent. Overall, geopolitical upheavals are slowing down investment in the industry. This is not helped by the relatively high order backlog, which in April was sufficient for more than eight months.

Previously, VDMA economists had assumed a slight increase in production of 1 per cent for the year as a whole. In the first four months of the current year, production in the mechanical engineering sector stagnated in comparison to the previous year; according to preliminary figures, it was 0.8 per cent below the previous year's figure in April. Incoming orders in the mechanical engineering sector were 9 per cent lower in the first five months of the current year than in the previous year. Capacity utilisation reached 87.4 per cent in April.

Cyclical slowdown and geopolitical upheavals

In addition to the now clearly noticeable cyclical weakening, geopolitical upheavals are also responsible for the poorer outlook, which are directly affecting the export-strong mechanical and plant engineering sector. The VDMA primarily cites the trade dispute between the USA and China, the uncertainty caused by the postponed Brexit and the threat of trade restrictions imposed by the USA on the EU. However, the further deterioration of the budget situation in Italy and the situation in the Middle East could also have further negative effects on investments.

Investments are postponed or frozen

„Many companies in the mechanical engineering sector still have well-filled order books to fall back on and can therefore cushion the decline in orders for a while longer. However, in order to achieve the existing forecast of a slight increase in production, significantly better data would be required for the coming months. However, it is questionable whether this can be achieved to a sufficient extent in an environment where trade disputes are flaring up again. And even a hesitant economic recovery in the second half of the year would only reach production in the mechanical engineering sector with a time lag, meaning that the industry would no longer benefit in the current year.“
Dr Ralph Wiechers, VDMA Chief Economist

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Business-friendly framework conditions required

It is therefore all the more important that politicians stop imposing ever new burdens on small and medium-sized enterprises and instead implement real relief for companies, demanded VDMA President Welcker.

„The state must concentrate on its core tasks: creating innovation and business-friendly framework conditions and providing an internationally competitive infrastructure. We need genuine tax relief, as other industrialised countries have long since implemented. We need more political commitment to open markets and new free trade agreements, especially with the USA. The state urgently needs to modernise infrastructure - digital, but also for transport and energy. And we must finally significantly reduce the bureaucratic burden on companies so that we can invest more.“
Carl Martin Welcker, VDMA President

Source: VDMA