What is the reason for the current success of some companies in mechanical engineering despite the economic crisis in Germany?

The German economy is in a phase of crisis. The gross domestic product is stagnating and the mood in companies is subdued. The industry is struggling with a weak order situation. Business associations express their concerns about the ongoing crisis and do not see a turnaround in the trend in 2025. But what about mechanical engineering, one of the most important industries in Germany? What is the reason for the success of some companies despite the economic crisis? Do exports or foreign branches play a decisive role? And in which country is the demand for German mechanical engineering know-how the greatest?

The economic situation in Germany

The German economy is in a phase of stagnation and the gross domestic product is stagnating. Although the ifo business climate shows the first rays of hope, the industry continues to struggle with a weak order situation. The business associations do not see an end to the crisis in 2025 either. In particular, weak domestic demand and persistent inflation are cited as reasons for the ongoing crisis mood.

DAX reaches new highs – what’s really behind it?

The German stock index (DAX) has reached a new record in the last few days and has almost reached the 20,000 point mark - Image: Google

The German stock index (DAX) has reached a new record in the last few days and has almost reached the 20,000 point mark. While some political actors, particularly from the Green camp, want to attribute this success to the economic policy of Federal Economics Minister Robert Habeck, a closer analysis shows that this claim is misleading.

Reasons for the DAX record

The rise in the DAX can be attributed to several factors:

1. International orientation of the DAX companies: The companies listed in the DAX only generate around 23% of their sales in Germany. The majority of their business takes place overseas, allowing them to benefit from global economic trends.
2. Interest rate policy: Investors are reacting positively to the prospect of falling interest rates from the European Central Bank (ECB) and the US Federal Reserve.
3. Technical factors: The DAX is a performance index that takes dividends into account, resulting in a natural increase over time.
4. Global economic prospects: Positive developments in other markets, particularly in the USA and Asia, influence the prices of DAX companies.

Discrepancy with the German economic situation

The DAX record stands in contrast to the current economic situation in Germany:

• The German economy shrank by 0.2% in 2024.
• Smaller and medium-sized companies listed in the MDAX and SDAX are recording losses.
• The DAX does not represent the entire German economy, but mainly large, internationally active corporations.

The DAX record is not a direct indicator of the success of German economic policy or the performance of Economics Minister Habeck. Rather, it reflects the global orientation of the DAX companies and international economic trends. For a more realistic assessment of the German economic situation, other indicators such as GDP growth, the development of medium-sized businesses and the performance of the MDAX and SDAX should also be taken into account.

Job boom despite economic downturn

Despite the ongoing economic downturn, the number of employed people in Germany reached a new record level of 46.1 million people in 2024. This apparent contradiction between job boom and economic downturn can be explained by several factors:

Service sector as a growth driver

The main reason for the increase in employment is in the service sector:

• 75.5% of all employed people worked in service areas in 2024
• The number of employees in this sector grew by 153,000 people (+0.4%)
• The growth was particularly strong in the areas of public service providers, education and health with +184,000 people (+1.5%)

Different developments in the sectors

While some areas grew, others experienced declines:

• Corporate service providers, including temporary employment: -55,000 people (-0.9%)
• Manufacturing and construction: slight declines

This different development shows that the economic downturn does not affect all sectors equally.

Shortage of skilled workers and demographic change

Many companies are holding on to their employees despite the weakening economy:

• The shortage of skilled workers remains acute in many industries
• Companies do not want to lose qualified employees, even if the order situation is temporarily weaker

Mechanical engineering in Germany

Mechanical engineering is one of the most important industries in Germany. It is strongly export-oriented and is considered an innovation leader. But mechanical engineering is also feeling the effects of the economic crisis. Expansion investments in Asia are losing traction. This is primarily due to geopolitical tensions and shifting supply chains. Despite these challenges, German mechanical and plant engineering has full order books. In November 2021, incoming orders in mechanical and plant engineering exceeded the level of the same month of the previous year by 23 percent in real terms.

The export share of German mechanical engineering companies is high. In 2020, German suppliers exported machines worth around $223 billion. The share of world exports was almost 14 percent. However, Germany lost the top position in mechanical engineering exports to China in 2020. Nevertheless, German mechanical engineering companies have performed better compared to other traditional export nations such as the USA and Japan. While Germany only lost 0.8% of the world market share, the USA and Japan had to give up half of their market share. This illustrates the relative strength and resilience of the German mechanical engineering industry in global competition.

However, it is important to note that the high export share makes German mechanical engineering vulnerable to global changes and trade conflicts. Protectionist measures and economic uncertainties in important sales markets can significantly impact the export of German machines.

Branches of German mechanical engineering companies abroad

Many German mechanical engineering companies have branches abroad. These allow companies to be closer to their customers and better serve local markets. The German Chambers of Commerce Abroad (AHKs) offer a comprehensive database of German companies with branches abroad. For example, Bertrandt AG, a development service provider in the automotive sector, has numerous locations in Europe, Asia and America. Schüco, a manufacturer of window, door and facade systems, also has a branch in the USA. Another example is Schaeffler, a global automotive and industrial supplier. Schaeffler has 170 locations in over 50 countries worldwide, including production facilities, research and development centers and sales companies. Local presence allows companies to better understand customers' specific needs and offer tailored solutions.

Suitable for:

• Safety-relevant components in mechanical engineering: Schaeffler rolling bearings with digital twin and GS1 DataMatix for optimized maintenance and reliability

Demand for German mechanical engineering know-how

The demand for German mechanical engineering know-how is high worldwide. German machines and systems are known for their quality, precision and technological excellence. The most important buyer countries include the USA, China and many European countries. China is the most important trading partner and one of the most important buyers of German machines. The continued demand for German machinery and equipment, even during the pandemic, shows the industry's resilience and customers' trust in German technology.

However, German mechanical engineering is facing increasing competition in global competition. China and the USA are the largest competitors in mechanical engineering in terms of sales. In order to survive in international competition, German companies must continue to focus on innovation and the development of new technologies.

Success in mechanical engineering: export or foreign branches?

The success of German mechanical engineering companies is due to both exports and their presence abroad. Exporting allows companies to serve a large market and achieve economies of scale. Foreign branches allow companies to be closer to their customers and better serve local markets. Both factors contribute to German mechanical engineering companies being able to be successful even in times of economic crisis.

German mechanical engineering companies are characterized by their technical expertise, the provision of high-quality, customer-specific solutions and excellent service. Long-term customer relationships, a broad regional presence and the willingness to open up new markets and advance technological change are further success factors.

An important aspect for the future success of the industry is the prevention of knowledge leakage abroad. Protecting intellectual property and securing know-how are crucial to maintaining the competitiveness of German companies.

Historically, German mechanical engineering has had to face challenges in the past. The global collapse in demand for capital goods in the 1990s and the appreciation of the German mark led to a difficult situation for the industry. However, the German mechanical engineering industry has successfully overcome this crisis and maintained its position in the global market.

Investments in innovation and technology are crucial

The success of some mechanical engineering companies despite the economic crisis in Germany can be attributed to several factors. Export plays an important role as it allows companies to serve a large market. Foreign branches allow companies to be closer to their customers and better serve local markets. China is the most important trading partner and one of the largest buyers of German machines.

However, the German mechanical engineering industry is facing challenges. The economic crisis in Germany, increasing competition from other countries and the danger of knowledge leakage require continuous adaptation and further development. In order to continue to be successful in the future, companies must continue to focus on innovation, quality and customer proximity.

Digitalization plays a crucial role in the future viability of the industry. German mechanical engineering companies must invest massively in digital transformation in order to remain globally competitive and maintain their high quality standards. At the same time, German companies plan to further increase their research and development activities at home and abroad. These investments in innovation and technology are crucial to meeting the challenges of global competition and securing the position of German mechanical engineering as an innovation leader.

The German mechanical engineering industry has proven in the past that it can successfully overcome crises. By focusing on innovation, customer proximity and opening up new markets, the industry can continue to maintain its strong position in global competition in the future.

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