The mechanical engineering industry in Germany must continue to prepare itself for considerable burdens. The VDMA predicts that the trade dispute between the USA and China and growing protectionism around the world will not leave the mechanical engineering export champion unscathed. Added to this are the global economic downturn, Brexit and structural change in key customer groups.

"All of these factors are already having a negative impact on numerous customers of our machines and systems worldwide and are generally unsettling investors, who are therefore holding back on investments. There is no sign of a sustainable change for the better in the near future. We therefore anticipate a real decline in production of two percent in the mechanical engineering sector in 2020," explains VDMA Chief Economist Dr. Ralph Wiechers. The production forecast for the current year - also down two percent on the previous year - is confirmed by the VDMA economists.

Tariff war not only affecting China and the USA
In Germany, the situation and outlook in the industry has recently deteriorated further and the investment climate - especially in the automotive industry - has suffered noticeably. According to the association, there is also no expansionary impetus abroad in important mechanical engineering sales markets. Even in the USA, investment momentum has slowed considerably and there are increasing signs that American industry is also suffering from the trade dispute with China.

In the People's Republic, on the other hand, the effects of the tariff war are becoming increasingly noticeable, which, in addition to weakening growth, is leading to stagnating and in some cases even declining sales in the notable industrial sectors. The outlook for machinery deliveries to the EU, the largest sales market, is also mixed. Due to their close trade relations, many countries are suffering from the trade dispute between the USA and China. Added to this is the ongoing uncertainty as to when and how the UK's exit from the EU will take place. "As if that wasn't enough, the industry is having to cope with losses in important emerging markets. Whether in Russia, Turkey, Iran, Mexico or Argentina - business in these high-yield markets is increasingly being made politically difficult for us," says Wiechers.

Orders last for 8.4 months
The downturn for mechanical engineering companies is being cushioned by a still good order backlog of 8.4 months (July 2019). Capacity utilization (86.6%) has thus far been maintained, albeit just above the long-term average. The number of people employed in Germany (companies with more than 50 employees) remains high at 1.064 million. Real production is now slightly negative; in the first seven months of the current year, it fell by 0.9% compared to the previous year. "While the first quarter of 2019 saw an increase of 0.3%, production in the second quarter fell by 2.9% compared to the previous year," explains Wiechers.

"Despite all the risks, however, we should not lose sight of the opportunities. Global industrial growth is now at a level that, barring massive disruptions, is unlikely to fall below. And a solution to one or two political conflicts is difficult to imagine, but cannot be ruled out," adds the VDMA chief economist.

In addition, structural change - digitalization, new forms of mobility, CO2-neutral production - offers opportunities for innovative, well-positioned companies. However, this must be flanked by sensible political framework conditions. "In general, innovation can compensate for the resulting losses in times of economic weakness and political confusion," Wiechers concludes. as