So bad is the state of the mechanical engineering industry

Author: Than Duy Tran
Date: 09.09.2019

Order numbers continue to drop

Things could be better for mechanical engineering at the moment. The industry association VDMA has now announced that the number of orders is lower than last year for the seventh month in a row. The current level is causing unrest.

German industry continues to be on a downward trend. Many industries are struggling with a declining number of orders. The number of orders in the manufacturing sector was around 2.7 percent lower than in the previous year and even 5.6 percent lower than in the previous calendar month. Mechanical engineering plays a particularly important role here. Orders in the industry have been declining for eight months now. Meanwhile, an improvement is not in sight. Compared to the same period of the previous year, the number of orders was around three percent lower.

“It’s true that the results were less gloomy than in the previous months,” says Ralph Wiechers, head economist at the VDMA. If you take a look at the three-month comparison of the months May to July, you can see a decline of eight percent compared to the previous year’s figure.

According to Wiechers, there won’t be an improvement in the numbers in the near future. “The trend continues to point downwards and business and export expectations remain pessimistic in view of the economic and political risks for the second half of the year.” The situation is also already very noticeable in day-to-day business. While capacity utilization in January was still 89.2 percent, it is now only 86.6 percent – with a downward trend.

According to VDMA, orders in 2018 lasted an average of 8.7 months. At the moment, the declines in orders are almost sufficient for the same period. Companies in the industry must therefore live off their substance to a much greater extent.

The losses will occur both at home and abroad. It is even the case that the number of orders in the euro countries has grown, but this figure is overshadowed by the extremely high decline in the non-euro countries.

International trade conflicts such as the Brexit dispute or the situation between the USA and China are particularly causing problems. “On her trip to China, Chancellor Merkel must once again point out that the trade dispute not only has bilateral effects, but is increasingly affecting the global economy and creating ever greater uncertainty,” explains Klaus Mittelbach, chairman of the management board of the German Electrical and Electronic Manufacturers’ Association (ZVEI).

The electrical engineering and electronics industry is also far from doing well. Overall, the minus at the end of the first six months was around 1.6 percent. As a result, orders on hand fell from 3.4 to 3.1 production months. “It will now be very difficult to actually achieve our production forecast of plus one percent,” concludes chief economist Andreas Gontermann.

In addition, the business climate slumped below zero for the first time since October 2014. “The current situation was assessed significantly worse than in June, but general business expectations have also dropped,” says Gontermann.

The forecast for mechanical engineering has already had to be corrected several times. Production is forecast to fall by two percent this year. With around one million employees, a plus of around two percent was still recorded in 2018. However, the Leibniz Institute for Economic Research in Halle is still confident, although the decline in incoming orders suggests that investment in equipment is facing a phase of weakness.

Oliver Holtemöller, the IWH Vice-President and head of the macroeconomics department, predicts that “no serious recession is likely to occur despite this, as evidenced by the still very favorable financing conditions and the still good labor market situation, which will significantly increase workers’ incomes”.