The latest production forecast issued by the association of Germany's engineering industry, VDMA, paints a gloomy picture for the second half of 2023. The faltering global economy and dearth of new orders are impacting the outlook for the export-oriented mechanical engineering industry.
To date, companies are still benefiting from order backlogs that enabled production to grow by 1.7% in real terms in the first seven months. "But this buffer is melting and the current year's order intake up to and including July is 14% below the previous year, which will have a negative impact on production," said VDMA chief economist Dr Ralph Wiechers.
For this reason, the association expects production in the mechanical and plant engineering sector to decline by 2% in real terms for the year as a whole compared to the previous year.
In the less volatile three-month period from May to July 2023, orders fell by 12% year-on-year in real terms. There were 6% fewer orders from the domestic market and 15% fewer orders from abroad. Euro countries remained 17% below the previous year's level, while the drop from non-euro countries was 14.
No improvement in the short term seems likely. Uncertainty abounds as the duration and intensity of the current weakness of the global economic situation cannot yet be assessed.
According to Wiechers, the global situation may stabilise in the course of 2024, ‘perhaps even grow strongly again from the new, lower level that has been found’. However: “there is no impetus at home or abroad right now for a strong revival of business. Stubborn inflation resulting in tight monetary policy by the major central banks and the Ukraine war with all its political and economic consequences are strong burdens. So are the ongoing geopolitical tensions between the USA and China and, last but not least, the heated discussion about competitive location conditions. All of this is unsuitable to instil confidence in investors and create a mood of optimism." He expects another real decline in production of 2% in 2024 compared to the previous year.
It is not all doom and gloom, he added. Capacity utilisation in July, for example, remained almost unchanged at a high 88.8%, well above the long-term average, despite falling order numbers. Employment in the core workforce also rose again slightly in June by 1.5% to 1.02 million people (companies with more than 50 employees). Exports grew by 11.5% in nominal terms and 3% in real terms year-on-year in the first half of 2023.
"All this shows that the machinery and plant engineering sector is not in crisis mode, but is extremely robust. What would benefit us now would be a less stressful environment and politically wise decisions that meet the many challenges and encourage customers worldwide once again to invest in the climate-neutral future and transformation technologies, for example," Wiechers concluded.