German mechanical engineering activity sinks in second half

Due to a lack of new orders, production in the machinery and plant engineering sector will shrink in the second half of 2023, Kallanish hears from German engineering federation VDMA. It expects production to decline by 2% in real terms for the year as a whole.

To date, companies in the export-oriented mechanical engineering industry are still benefiting from order backlogs that enabled production to grow by 1.7% in real terms in the first seven months of 2023. “But this buffer is melting and the current year’s order intake including July is 14% below the previous year,” says VDMA chief economist Ralph Wiechers.

A look ahead does not promise any improvement in the short term, either, VDMA notes, although it does not exclude that a rebound could occur from a lower base in 2024. At the moment, though, the global economy is going through a phase of weakness, the duration and intensity of which cannot yet be assessed.

“A tenacious 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,” Wiechers says. “So are the ongoing geopolitical tensions between the USA and China and, last but not least, the heated discussion about competitive conditions to ensure companies stay in Germany.”

Wiechers nevertheless points to the strengths of the industry. Capacity utilisation in July, for example, remained almost unchanged at a high 88.8%, well above the long-term average. Employment in the core workforce also rose again slightly in June by 1.5% to 1.02 million people. Exports grew by 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,” he concludes.

Christian Koehl Germany