Mechanical engineering expects production to fall by 17 percent in 2020
The corona pandemic is causing great reluctance to invest in mechanical and plant engineering. Production is also suffering as a result in the second half of the year. For 2021, the VDMA expects a small production increase of 2 percent.
The mechanical and plant engineering industry is fighting against the consequences of the global corona pandemic, but also against protectionism in international trade, which continues to be a burden. In addition, industrial change is taking place, which is particularly noticeable in the automotive industry, an important customer sector. All these factors are leading to a significant decline in key indicators in the mechanical engineering sector: order intake, capacity utilization and production. "Incoming orders in the German mechanical and plant engineering industry fell by 16 percent in real terms in the first seven months, while production was 14 percent down on the previous year in real terms," said VDMA Chief Economist Dr. Ralph Wiechers. "Even if there are signs of a slight easing at a low level at the current time, we must expect the weak demand to still have a noticeable impact on production in the second half of the year. We therefore expect a 17 percent drop in production for the year 2020 as a whole".
Capacity utilization well below long-term average
As a result of the Corona pandemic and the resulting impact on business, average capacity utilization in the mechanical and plant engineering sector fell well below the long-term average of 86 percent. "Between January and July, capacity utilization dropped from 84.1 to 76.1 percent," explained the VDMA Chief Economist. "Our industry last reached such a low level in 2010.
"Our industry last reached such a low level in 2010."
Outlook 2021: slight confidence
For 2021, the VDMA economists basically assume that the global economy will recover - albeit hesitantly and not necessarily without disruptions. "For the mechanical and plant engineering industry, the trees will not be growing into the sky next year. We will certainly not reach the pre-crisis level of 2019," said Wiechers. "We expect production to grow by 2 percent in 2021," predicted the VDMA chief economist.
A further prerequisite for any growth is that the Corona pandemic does not again paralyze markets and supply chains and that the important customer countries of the mechanical engineering industry do not allow themselves to be drawn into further trade wars. Furthermore, he stressed that not all mechanical engineering sectors would benefit equally from a recovery. Capital goods manufacturers are not only suffering comparatively more than other sectors from the continuing high level of uncertainty. They were also often the victims of a far-reaching structural change in important customer sectors. "But where there are risks, there are also opportunities. And more than once, a recovery has progressed much faster than initially expected. So the upturn already apparent in the business climate figures could well develop a sustained momentum of its own," Wiechers analyzed.