German mechanical engineering sees no downtrend reversal

Orderbooks at German machine builders suffered a visible drop in the first half-year and will not recover anytime soon, says mechanical engineering federation VDMA. The regular sentiment reports from VDMA (Verband der Maschinen- und Anlagenbauer) are a barometer for investment activity in manufacturing industries, not only in Germany.

In the first six months of the year, order intake was 14% lower than in the first half of 2022.
Domestic orders fell by 11%, and foreign orders by 15%, with eurozone countries losing slightly more order volume than other countries, Kallanish notes.

The trend became slightly more pronounced towards mid-year. In June, order intake fell by 15% year-on-year overall, but with some remarkable deviation from the period thus far. Domestic orders dropped deeper, by 18%, confirming the prevailing sentiment of a particularly weak German industry.

Orders from abroad dropped less steeply, by 14%. Here, orders from eurozone countries showed a comparatively more positive development with a decline of only 2%, while other countries recorded a minus of 19%. VDMA did not provide an interpretation of the trends.

In any case, the overall decline “means that the balance sheet for the first half of the year is clearly negative,” says VDMA chief economist Ralph Wiechers. “Although many companies are still living off high order backlogs, the air is slowly getting thin in terms of new orders. A turnaround is not yet in sight.”

He attributes the reluctance to invest to restrictive monetary policies aimed at curbing inflation and uncertainties caused by geopolitical disputes. He also mentions the reorientation of companies and their business models as a result of what VDMA calls “the transformation”. This includes digitalisation and transitioning towards lower-emission technology, but also a prevailing lack of skilled workers.

According to a VDMA spokesman, the latter issue has grown into a structural problem. “We have been dealing with a shortage of skilled workers for years, not only in Germany but also elsewhere in Europe,” he tells Kallanish.

Christian Koehl Germany