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German machine tool industry expecting a decline in production in 2024

In 2024, the German machine tool industry is expecting production to decline by almost 3 per cent to EUR 14.8 billion in nominal terms. “A nominal record volume of 17 billion euros was posted in 2018/2019, and five years later, there is still no sign of this figure being matched,” said Franz-Xaver Bernhard, Chairman of the VDW (German Machine Tool Builders’ Association), at the association’s annual press conference held in Frankfurt am Main, Germany at the end of January 2024.

There has been a clear slowdown in orders since the beginning of last year, which is now having an increasing impact on sales and production. The considerable order backlog, representing around eleven months’ work, had helped. However, nearly all supply bottlenecks have since been resolved, allowing the backlog to be worked through more quickly. Accordingly, orders on hand are less and less able to compensate for the lack of new orders. Overall, orders fell by 10 per cent in nominal terms in 2023. The decline was partly offset by several months of stronger project business. Domestic demand fell by 14 per cent, almost twice as much as foreign demand.

The global economy is unlikely to provide much impetus in 2024. The growth rates of both gross domestic product and investment are once again down on the previous year’s levels. The international purchasing managers’ index also highlights the weakness of the global economy in all key markets, particularly in the eurozone and Germany.

“In fact, we are currently seeing two divergent developments,” reported Bernhard. Growth sectors such as electric vehicles, wind power, medical technology, aerospace and defence boosted the project business in particular, while the standard machine business performed more weakly. Small and medium-sized customers such as job shop businesses are uncertain about the future and are reluctant to invest. Machine purchases are also more difficult to finance due to higher interest rates. Companies that prepared for the transformation process at an early stage are therefore better able to weather the weak demand.

2023 ended with a good result overall
Last year, production is estimated to have risen by just under 8 per cent in nominal terms, to EUR 15.2 billion. In real terms, this represents an increase of 2 per cent due to inflation, which remained at a high average level over the year. Exports grew by 9 per cent. The export ratio reached almost 70 per cent. Exports were boosted by double-digit growth in America. Asia and Europe, on the other hand, only recorded single-digit increases. The US in particular saw extremely dynamic growth, driven above all by investment in climate protection and renewable energy. China, by contrast, experienced weak growth due to falling consumer demand and the ongoing difficulties in the real estate sector. India, on the other hand, enjoyed sharp upward growth.

At 5 per cent, domestic sales did not increase quite as much. This is attributable in part to the weaker demand from domestic customers. Averaging out at 89.6 per cent over the last year, companies had good capacity utilisation and also took on more staff again. Around 66 600 women and men were employed in the sector at the end of 2023, 2.4 per cent more than at the end of 2022.

Bureaucracy disproportionately impacting SMEs
A further cause of great concern to the industry – in addition to the general economic development – is the regulatory zeal of the German government and the EU administration. Bernhard cited the Supply Chain Duty of Care Act and the European Union’s Corporate Sustainable Reporting Directive (CSRD) as “particularly egregious examples of bureaucratic monsters”.

“They are an additional burden on business and pose a disproportionate challenge to small and medium-sized companies in already difficult times. They fail to achieve their goals and the resulting costs are far too high,” was his verdict.

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