VDMA forecasts sales of EUR 210 billion for 2014

New growth opportunities provide optimism. This would be the highest level of sales ever recorded by the mechanical engineering industry.

 

“We are forecasting sales of EUR 210 billion for 2014,” commented VDMA President Dr Reinhold Festge at the Association’s press conference at the 7th Mechanical Engineering Summit in Berlin. Ten years ago, in 2004, sales in the mechanical engineering industry amounted to EUR 143 billion. “This represents growth of 46% in a decade,” Festge observed.

 

Germany as an industrial location needs investment

With the economy currently stumbling, Germany urgently needs public and private investment. “But let us make one thing clear: no financing through new taxes!” warned the VDMA President. He added that the German Federal Government had recklessly squandered available funds on the pension at 63 and the increase in the insurance periods recognised for bringing up children (Mütterrente). “This policy is now coming home to roost,” he said. What companies need is clear: “An investment-friendly climate is essential if we are to defend our position as an industrial location.” Festge noted that the measures introduced by the German Federal Government have not helped matters. Instead of continuously looking to redistribute funds – e.g. with the pension at 63 and the minimum wage – it would be better to establish reliable, forward-looking conditions for investments in innovation, modernisation, education, research and development in order to improve the long-term growth outlook.

 

Production growth for mechanical engineering firms remains at 1% in 2014

All in all, mechanical engineering firms remain confident with regard to 2014: “We should not talk down the German economy. Our incoming orders in the period from June to August were 3% higher than in the same period of the previous year, so there is no need to discard our target of production growth of 1% for 2014,” commented the VDMA President.

At EUR 87.7 billion, the export volume in the first seven months of 2014 was down around EUR 500 million year-on-year. This was due to the failure of global economic development to meet original expectations. Direct cancellations of deliveries to Russia amounted to around 20% in the first half of 2014. The negative trend was exacerbated by the excessive way in which the EU sanctions were handled in Germany. “A bitter blow for us: Providers from Asia, and China in particular, have immediately filled the gap and German companies are losing their reputation as reliable suppliers that they have built up over many years,” explained the VDMA President.

 

18,000 jobs created in twelve months

In August 2014, German mechanical engineering firms had a total of 1,008,000 employees, 1.8% or 18,000 more than in the same month of the previous year. In May 2014, the number of employees reached seven figures for the first time since 1993. “The excellent workforce figures are a measure of the confidence within the industry,” the VDMA President emphasised. “Firstly, a number of employees will retire over the coming years, including as a result of the pension at 63. Secondly, many regions and occupations are already experiencing a shortage of qualified labour. Mechanical engineering firms are therefore taking precautions to ensure that the next generation of specialists and managers are in place in good time. This serves to underline their belief in the medium-term growth opportunities here in Germany,” Festge reported.

 

Continued positive outlook for 2015

Mechanical engineering firms are forecasting production growth of 2% for 2015. “Although this does not represent a particularly dynamic development, an upturn is overdue following the somewhat languishing performance in 2013 and 2014, if only from a cyclical perspective,” noted the VDMA President. “However, a combination of intelligent structural reforms, increased public and private investment and a low-valued euro would give our growth considerable impetus. Until then, we will have to satisfy ourselves with the knowledge that positive impetus for export growth will only be provided by the depreciation of the euro and the resulting improvement in our price competitiveness.” Various factors have prevented this cycle from taking hold across the board. With France, Russia and Italy, three of the top export markets alone have regularly been the source of negative headlines.

Mechanical engineering firms look to the future markets of Africa, China and the USA and the TTIP free trade agreement

“The USA will become more important, China will remain relevant and Africa will offer considerable opportunities.” This is the VDMA President’s summary of the future outlook for mechanical engineering. All in all, growth in demand for equipment is expected to come in particular from the US industries that are benefiting from low energy prices, such as petrochemicals. The US automotive sector will also continue to enjoy substantial investment. This is why TTIP is also of crucial importance. “The USA is already our second most important export market and our most important foreign investment destination. But things would be much better still if there were no technical and bureaucratic barriers, for example. There is a simple equation that is evidently yet to find much of a sympathetic ear in the public debate on TTIP: lower tariffs and barriers to trade will lead to improved export opportunities, higher sales and more – and more secure – jobs,” Festge emphasised.

“TTIP would be a real stimulus plan, and one that would come free of charge. And we simply cannot afford to let down the USA simply because we in Germany are obsessed with the dangers of chlorinated chickens.”

Current developments in trade with China are also highly encouraging. Following two weaker years in 2012 and 2013, exports by the German investment goods industry saw year-on-year growth in the first half of 2014. This underlines the positive investment environment in the country and shows that high-end products from Germany are still held in high regard by Chinese customer sectors.

 

Africa: A continent with potential

The VDMA believes that Africa offers considerable growth potential for its member companies. Machinery with a total value of around EUR 4.4 billion was exported to Africa in 2013, an increase of more than 11% on the previous year. Although the growth in exports slowed somewhat in the first few months of 2014, this was primarily due to the lower level of exports to the Republic of South Africa, the continent’s largest individual market. By contrast, Algeria, Nigeria, Ethiopia, Kenya and Namibia have all enjoyed extremely positive development in 2014. “Despite this, we face competition from Asian mechanical engineering firms in Africa, and there is certainly still room for improvement when it comes to the market share for ‘Made in Germany’ machinery,” Festge commented. “Accordingly, we would like to see a strategy for Africa that is stringently coordinated between the individual ministries. One particular issue is the more flexible use of Hermes instruments. German companies are at a disadvantage compared with other nations when it comes to financing on the African continent in particular.”

 

Technological leadership requires innovation

In order to drive forward innovative topics such as “Industry 4.0” or additive manufacturing – also known as 3D printing – the VDMA is once again calling on politicians to reintroduce digressive depreciation for an unlimited period. “This would reflect the actual depreciation of investments and the need for modernisation, facilitate investment financing, and increase the attractiveness of Germany as an investment location,” noted the VDMA President.

Festge added that Germany was only well positioned in relation to the politically and economically reform-resistant nations of southern Europe. This is due to the failure of policies to inspire confidence or send out clear signals in favour of higher growth and employment. “The low level of investment has long been endangering Germany’s competitiveness as an industrial location. In the last two years alone, investments in equipment have declined by almost 3%,” Festge reported. “To put it clearly: We are not calling for a stimulus plan. But we are calling for policies that embody a clear commitment to higher growth and employment in the form of reliable regulations that provide greater scope for investment.”