VDW forecast: production to grow again in 2026

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In 2025, production had fallen by 8%. Compared to the highest result in 2018, the gap is a fifth. Adjusted for prices, there is even a gap of 35%. According to Bernhard, it is obvious that this is not due to cyclical but structural changes. Unfortunately, this also requires capacity adjustments. In October 2025, the industry had already reduced the number of employees in companies with more than 50 employees by 3.9% year-on-year to 63,300 women and men. According to the VDW economic survey from October 2025, a third of respondents expect the core workforce to continue to shrink. However, this will probably only become really visible in the figures in the current year.

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"We are very worried about the competition from China," says Bernhard. As expected, the Chinese have massively increased their machine tool exports by 18 percent. This development was exacerbated by the weak demand in the country itself. As a result, German manufacturers had to cede their leading international export position to China. The country is continuing to strongly expand its position in the Asean region, as well as in Brazil, the Middle East and North Africa. Exports to some EU countries are also continuing to rise, for example to Germany, Poland and Italy, although overall imports from these countries have tended to decline in recent years.

"As we know, our companies are currently struggling with challenges in the two major sales markets of the USA and China at the same time. Economic experts agree that both markets will remain difficult and uncertain for the foreseeable future," says Bernhard. None of this is promising news. "Companies must face up to this reality and focus on their strengths. These are a strong home market in Europe, our technological leadership, efficient research and development and well-trained specialists." In order for the industry to regain momentum, it must exhaust all available options for action.

Local for local is becoming more important

Twelve major machine tool manufacturers now produce abroad. Their foreign production accounts for a good fifth of total German machine tool production. 45 percent is generated in Europe, 32 percent in China and 20 percent in the USA. It compensates for declining exports to important markets and stabilizes the companies' overall results. "Companies that can take advantage of this have a better chance of participating more strongly in local market growth despite existing trade barriers and also of realizing cost advantages," says Bernhard.

Diversify sales markets

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In 2025, German exports to the largest sales markets fell sharply due to US tariffs and declining Chinese imports. The top sales region for German manufacturers is the home market of Europe, which accounts for around half of exports. If the German market is added to this, the lion's share of machine tool sales of over 60 percent goes to the region. Customer sectors such as the defense industry, aircraft construction, electronics, energy and medical technology are very promising. The expansion and safeguarding of critical infrastructure for batteries and chips, the development of hydrogen technology, digitalization and the establishment of data centers are freeing up investment in Europe. Although they cannot replace the automotive industry in terms of importance, they can alleviate the pressure to transform.

With an international export share of 17%, Germany plays an important role worldwide despite the decline last year. "The industry owes its position as the world's second most important supplier to its technological leadership," says Bernhard. Time and again, companies succeed in meeting changing customer requirements. Germany's technological leadership is due to the high intensity of research and development in the companies. The R&D ratio in mechanical engineering is over 4 percent of turnover. Product innovations account for 15 percent of turnover. Internationally, German patent applications are in 4th place.

Strengthening research and development

The research allowance has provided a noticeable boost to research activities in mechanical and plant engineering. It enables tax write-offs, particularly for small and medium-sized companies, and is a very good example of the progress that can be made with the right framework conditions. "The research allowance could be further improved by simplifying access and making it less bureaucratic and by paying out the approved funds more quickly," demands Bernhard. Machine manufacturers still conduct more than four-fifths of their research and development activities in Germany. However, the larger companies in particular are considering relocating parts abroad along with production. "This must be prevented at all costs," says Bernhard.

Young skilled workers and the labor market

The machine tool industry lives from and works with highly qualified personnel. It is an important basis for technological leadership and continues to be a key locational advantage in this country. It remains an ongoing task for companies to communicate the attractiveness of the industry through all available channels and to offer high-quality jobs. Despite the current reduction in the workforce, the demand for skilled workers will remain high in the medium term. Labor market reforms would help to preserve jobs and promote the upturn.

In order to maintain their technological leadership, small and medium-sized machine manufacturers in particular will continue to rely on engineers in the future. Over 60% of the companies surveyed in the latest VDMA engineering survey stated that they want to keep their numbers stable or even increase them. Artificial intelligence will not change this. "Improving education and training has long been on the mechanical engineering industry's list of demands," says Bernhard. This includes the introduction of minimum standards and quality in the education system, the introduction of a compulsory technology subject in schools and the swift implementation of the digital pact.

Reforms with speed and clear priorities

"The German machine tool industry is an enabler for the domestic industry so that it remains internationally competitive. However, we have to fight on many fronts," summarizes VDW Chairman Bernhard. The industry is working intensively on the fields of action over which it has influence. On the other hand, the government can and must finally take countermeasures when it comes to home-made location problems. "As a medium-sized company, we are committed to this location because we cannot simply relocate our activities abroad. We therefore expect economic policy reforms that promote growth and investment in this country. We expect clear priorities and, above all, we expect speed. When the framework conditions improve, I am convinced that the prospects for industry and our sector will also brighten," concludes Bernhard.