Mechanical engineering in crisis

Pessimism is at a record high: the German mechanical and plant engineering sector is facing a challenging autumn. A clear majority of industry decision-makers (59%) expect the German economy to shrink in the next twelve months – the weakest figure since 2014.

The atmosphere in the German mechanical engineering sector has deteriorated by over 20 percentage points in the last three months, as the consulting firm PwC found in its latest industry report. Global risks such as trade barriers, potential bloc formations and armed conflicts further contribute to this mood. However, structural problems such as rising location costs, declining production and barriers to innovation in the areas of sustainability and digitalisation also play a significant role. Only 27 percent of the companies surveyed are optimistic about the development of the global economy.

Historically low capacity utilisation

The sales forecast for the industry has been revised downwards again, with an average growth forecast of minus four percent for 2024. This is the sixth quarter in a row with decision-makers anticipating a negative forecast, the analysts write. There is also a negative growth trend at the company level, with an average forecast of -0.2%. Capacity utilisation remains weak at an average of 84.1%, which represents a decline of 1.5 percentage points compared to the previous quarter. Less than a third of companies are operating close to full capacity, a historic low that was only surpassed during the lockdown phase of the COVID-19 pandemic.

Planned investments reflect pessimistic outlook

Planned investments reflect the pessimistic outlook, as only 16 percent of companies plan to increase their investments, a decrease of 6 percentage points compared to the long-term average. Rising energy and personnel costs are cited by 83% of decision-makers as the main obstacles to growth. In addition, regulatory concerns have increased significantly and are perceived as an obstacle to growth. A full 59 percent of the machine and plant manufacturers surveyed are pessimistic about the development of the German economy over the next twelve months. In summary, there is a clear shift towards pessimism among managers in the German mechanical and plant engineering sector. According to PwC, sales forecasts remain negative, although there are signs of a recovery at the company level. Cost forecasts have stabilised and most companies are planning to maintain their current sales prices. According to the market observers, this stability in sales prices reflects a cautious approach by industry leaders in order to manage the challenging market conditions.
Source: PwC