German mechanical engineering companies are feeling the effects of the weakening global economy. Customers are holding back on orders. A brightening at the end of the year changes little to the overall picture.
After a significant decline in orders last year, Germany’s mechanical engineering companies are not expecting a quick turnaround. The export-oriented industry felt the effects of the weakening global economy in 2023, and customers held back orders.
Adjusted for price increases (in real terms), incoming orders fell by 12 percent compared to the previous year, as the mechanical engineering association VDMA in Frankfurt announced. “In the major sales markets of Europe, the USA and China, there is a lack of confidence in a lasting global economic upswing, which the capital goods industry in particular would need,” explained VDMA chief economist Ralph Wiechers. There is still no sign of a trend reversal in orders.
Wiechers expects a difficult first half of 2024: “We simply need a better mood, which will then be reflected in incoming orders and possibly sales in the second half of the year at the earliest.”
Domestic companies recorded a total decline in orders of 11 percent last year, while 13 percent fewer orders came from abroad.
December brought slightly less bad values
At the end of the year, incoming orders were only single-digit below the previous year at minus 6 percent in real terms. “Customers from non-euro countries took care of this, and their orders even increased slightly by 1 percent,” explained Wiechers. As a result, the decline from abroad was comparatively moderate at 3 percent compared to the same month last year. Domestically, however, there was a decline of 13 percent.
In view of the slump in orders, the Association of German Mechanical and Plant Engineering (VDMA) recently lowered its production forecast for the current year from minus 2 to minus 4 percent. A real production decline of 1 percent was expected for last year.
According to the latest forecast, the International Monetary Fund (IMF) expects the global economy to increase in economic output by 3.1 percent this year. Previously, 2.9 percent was expected. The clouds in the economic sky are beginning to clear, IMF chief economist Pierre-Olivier Gourinchas recently wrote in a blog entry. But the pace of growth remains low and turbulence is possible.