The mechanical engineering sector, an engine of economic growth, is sputtering alarmingly! The construction industry is also affected

The German market for mechanical and plant engineering has developed very positively in recent years. According to some experts, this growth is expected to continue into next year. However, a decline in order intake has been observed in recent months. Nevertheless, experts assume that this decline is only temporary and that the market will stabilize again in the coming months.

For others, the slump in orders for German machinery and plant manufacturers is worrying. Order books are emptier than they have been since the financial crisis. The Ifo Business Climate Index for the manufacturing sector fell to a record low of 84.3 points in August. By comparison, the index value of 75.5 points in April 2020 was the lowest ever recorded.

German machine manufacturers expect production to shrink next year. This year, production growth of one percent is still possible, according to the industry association VDMA.

According to a forecast by VDMA chief economist Ralph Wiechers, the global economy will shrink by two percent in 2023. “The wind is blowing in the face of the global economy and thus of the mechanical and plant engineering sector.”

Due to weaker growth prospects in China and the ongoing war in Ukraine, the investment industry expects a more cautious stance from investors. Furthermore, high inflation and interest rate hikes, with which central banks are attempting to curb growth, are contributing to dampening investment sentiment.

Extended reality in mechanical engineering: VR simulator for construction machines & excavators with virtual reality - Image: Xpert.Digital

More about it here:

• Extended Reality in Mechanical Engineering: Komatsu Simulator for Construction Machinery & Excavators with Virtual Reality of XR Technology in the Metaverse

Development of actual order intake in the mechanical and plant engineering sector in Germany from July 2021 to July 2022 – Image: Xpert.Digital

The statistic shows the development of real order intake in the mechanical and plant engineering sector in Germany from July 2021 to July 2022. In July 2022, order intake in the German mechanical and plant engineering sector was 14 percentage points lower in real terms than in the same month of the previous year.

The figures were compiled from the association's regularly published press releases on order intake in the German mechanical and plant engineering sector.

Development of the ifo Business Climate Index from September 2021 to September 2022 – Image: Xpert.Digital

The ifo Business Climate Index stood at 84.3 points in September 2022. Compared to the previous month, the business climate thus fell by 4.3 points. According to the ifo Institute, sentiment within the German economy has deteriorated significantly. The ifo Institute attributes the decline in recent months to the war in Ukraine and growing uncertainty in the energy sector due to high energy prices and the threat of gas shortages.

The index value of 75.5 points in April 2020 was the lowest ever recorded. This was due to the outbreak of the Corona pandemic.

What is the ifo Business Climate Index?

The ifo Business Climate Index is an indicator of economic development in Germany. It is based on approximately 9,000 monthly reports from companies in the manufacturing, construction, wholesale and retail trade, and service sectors. Companies are asked to assess their current business situation and their expectations for the next six months. They can rate their current situation as "good," "satisfactory," or "poor" and their business expectations for the next six months as "more favorable," "unchanged," or "less favorable." The balance value for the current business situation is the difference between the percentages of "good" and "poor" responses, while the balance value for expectations is the difference between the percentages of "more favorable" and "less favorable" responses. The Business Climate Index is a transformed mean of the balances for the current business situation and expectations. To calculate the index values, the transformed balances are each normalized to the 2015 average.

Other economic indicators

Economic indicators measure the economic development of a country or region. They are typically collected at short intervals, usually monthly or quarterly. Their results receive considerable attention in the media and on the stock markets. Indicators can be categorized as leading indicators, which predict future conditions (e.g., business climate indices); coincident indicators, which reflect the current situation (e.g., changes in industrial production); and lagging indicators, which track economic developments with a delay (e.g., unemployment figures). Furthermore, a distinction can be made between real economic indicators, such as gross domestic product (GDP), and results from surveys of businesses, consumers, or economic experts. These are generally weighted and indexed according to various criteria to allow for comparisons between different points in time.

Balances of the ifo Business Climate Index for the construction industry from August 2021 to August 2022 – Image: Xpert.Digital

The statistic shows the monthly values ​​of the ifo Business Climate Index for the construction industry in Germany from August 2021 to August 2022. In August 2022, the balance value was -14.5 points.

Mechanical engineering in Germany – Image: Ase|Shutterstock.com

Germany is one of the most important mechanical engineering countries on the international market. Only China and the USA recently generated higher sales in the sector. After a decline during the financial crisis of 2008/2009, sales in the German mechanical engineering sector have increased steadily again – most recently reaching around 229 billion euros.

Within the mechanical engineering sector, the most important sectors are machine tools, drive technology and conveyor systems, measured by annual turnover.

Regarding developments in international trade, the mechanical engineering sector is strongly export-oriented. Germany's export ratio has fluctuated between 74 and 80 percent in recent years. Among the most important countries for German machinery exports are the USA, China, and France

The mechanical and plant engineering sector in Germany is among the highest-grossing and most innovative industries. Since 2011, the sector's revenues have consistently exceeded €200 billion. Over one million people are employed in the German mechanical engineering industry. The export value of German mechanical engineering products far surpasses the import value. Germany's most important export markets include the USA, China, France, and Italy.

Mechanical engineering is undergoing a transformation. Digital transformation, IoT, Industry 4.0 and AI towards the Smart Factory are changing our perception of gear-driven and oil-smeared mechanical engineering.

More about it here:

• Mechanical engineering in Germany – statistics and facts