German mechanical engineering industry sees weak demand continuing

Germany’s mechanical engineering industry continues to suffer from a slump in orders, with only a slight recovery expected in 2021, industry association VDMA said July 9.

According to a VDMA survey, more than half of mechanical engineering companies expect drops in sales of 10%-30% in 2020, with the current order situation assessed as “poor” having been severely affected by the economic downturn caused by the coronavirus pandemic.

Sources in the steel industry said orders from the mechanical engineering sector fell significantly at the height of the pandemic in Europe, but by not as much as from the automotive industry.

Following construction and automotive, the mechanical engineering sector is the third largest customer group for the German steel industry.

The steel sector supplies about one-fifth of the input purchases for machine building and 12% of those for the automotive industry.

Most companies in the steel supply chain remain at reduced capacity throughout summer with short-time working in place.

“On the demand side, there is little reason for an all-clear: 45% of the companies report a noticeable drop in orders, another 34% even severe ones. This confirms the gloomy picture of recent weeks,” VDMA chief economist Ralph Wiechers said.

Particularly engineering businesses with automotive customers were still reporting sharp drops in orders.

The VDMA said that the current situation would not suggest return to 2019 production levels any time soon.

“Although numerous leading indicators are showing the first signs of things brightening up, this optimism is expectation-driven and therefore very fragile,” Wiechers said.

Most companies in the sector still have capacity cuts in place, with 68% using short-time working, meaning reduced shifts and government aid for workers’ pay, 62% have imposed a hiring freeze and 17% have initiated staff reductions.
— Laura Varriale