Exports remain guarantor of success for mechanical engineering sector

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Sales in mechanical engineering sector surpass EUR 220 billion mark for the first time in 2017- Increase in sales to more than EUR 230 billion expected for 2018

  • Sales in mechanical engineering sector surpass EUR 220 billion mark for the first time in 2017
  • Increase in sales to more than EUR 230 billion expected for 2018
  • Significant increase in exports to China but rate will slow in the year ahead
  • Additional costs in the hundreds of millions if the United Kingdom leaves customs union
  • Mechanical and systems engineering industry is and will remain to be biggest industrial employer in Germany

Following a year marked by success, machinery and equipment manufacturers in Germany are ready to tackle the coming months with confidence and momentum. The mechanical engineering industry will surpass the EUR 220 billion sales mark for the first time in 2017. The aim is to reach EUR 224 billion, VDMA President Carl Martin Welcker stated at the Association's annual press conference in Frankfurt. The year now drawing to a close could therefore "justifiably be referred to as an upswing year." Welcker added: "We are expecting the momentum to remain at the same level in 2018 and therefore to achieve a 3% production growth again. After all, that would translate to a further sales increase to over EUR 230 billion."

However, the industry will have to live with many uncertainties both in Germany and abroad in the year ahead, which could prevent a higher rate of growth. In Germany, there is indeed legitimate hope that the investment backlog that has been accumulating for a long time will gradually be solved. "Many of the older machines and systems on the market are unlikely to be able to adequately master the challenges of the advancing digitalisation. That gives us hope that domestic orders will finally come in at a higher rate again," explained Welcker. However, the political course has not yet been set for stronger domestic business. "The key requirements that we defined ahead of the German federal elections are the same," emphasised the VDMA President. They include, for example, the development of an extensive gigabit network and the introduction of tax incentives for research activities as well as a labour market policy and labour law that are based on corporate practice. "This is what every new government will have to benchmark itself against," Welcker warned. And the unions need to step up now, too. "The unions have to be aware that the future competitiveness of our industry is at stake here. The demands made by IG Metall, in particular for the introduction of a 28-hour week, would inflict considerable damage on SMEs in Germany," cautioned the VDMA President.

"We are expecting the momentum to remain at the same level in 2018 and therefore to achieve a 3% production growth again."

6.2% growth in exports in the first nine months of 2017
This year, exports were the guarantor of success for Germany's mechanical engineering industry once again. In the first nine months, goods worth a total of EUR 124.4 billion were exported, which constitutes an increase of 6.2% in real terms as compared to the previous year. Three out of four machines were made for export, with the EU remaining the biggest sales region by far.  46.5% of all exports were shipped to the 27 partner countries of the European Union. Although the USA retained its position at the top of the largest individual export markets in this period, China displayed significantly stronger growth. "China is on the right track to reclaiming the top spot on our export ranking list. At the beginning of the year, we would never have thought a 24% growth in exports within the first nine months was possible. The effort made by the Chinese government to present the country in full economic bloom in time for the 19th National Congress of the Communist Party obviously played an important part here," Welcker analysed. However, the growth in exports to China will slow down a little in 2018, simply because of the level that has already been reached, he added.

The VDMA President criticised the continuing lack of reliability in the China business. "We need more planning certainty, reliable framework conditions and better conditions for investment," he demanded. The Association will not tire of presenting these demands to the Chinese authorities. The mechanical engineering industry does not intend to put obstacles in the way of Chinese investors who are interested in becoming active in Germany but expects the same conditions for investment in China in return. "We expect to also be given the opportunity to invest in or acquire local Chinese companies. And we strongly oppose the attempts made by party officials in China to exert greater influence on our companies' executive boards," emphasised Welcker. Roughly 750 mechanical engineering companies from Germany, most of which are SMEs, already operate in China, and this industry is thereby making a great contribution to the country's technological development," said the VDMA President.

Uncertainty about Brexit reflected in decrease in exports
Mechanical engineering companies are observing the developments in the context of Brexit with some concern. In the first nine months of 2017, exports to the United Kingdom, the fourth largest individual export market, went down by 4.5% as compared to the previous year. It is high time to push forward with the negotiations about the future relationship between the EU and the United Kingdom in order to prevent a hard Brexit in March 2019, Welcker demanded. "We expect the topics of trade and economy to be settled quite quickly once the second phase of negotiations begins.  We need measures to prevent the market conditions from drifting apart after the United Kingdom leaves the EU. A customs union would be the most suitable path to take." Should the United Kingdom leave the customs union, the VDMA calculated that German mechanical engineering companies would face additional export costs of over EUR 180 million per year. There would also be additional costs of EUR 44 million per year for importing machines from the United Kingdom, plus further expenses for importing components.

With regard to the planned US tax reform, the VDMA President said: "Many details are yet to be clarified, but I will venture to predict that, depending on its design, this tax reform will also have a considerable impact on our European tax systems."

1.35 million employees in German mechanical engineering industry
With a labour force of just under 1.35 million, the mechanical and systems engineering industry is the biggest industrial employer in Germany. This holds true even if the employee numbers are determined on the basis of companies with 50 or more employees. According to this census, there were 1.03 million people employed in the German mechanical engineering industry in September, which constitutes an increase by 21,000 people or 2.1% as compared to the previous year. And further growth is on the horizon: In the first ten months of the current year, 24,000 new positions to be filled were reported to the employment agencies in the field of mechanical engineering (not including the repair and installation of machines) – almost 37% more than the previous year. "The consistently high demand for technical staff, IT specialists and engineers is leading to recruitment bottlenecks for our companies more and more frequently. The problem is further aggravated by the fact that the mechanical engineering industry is losing more than the average number of employees due to the pension age of 63. The new German government will have to reset the course again in order to rather enable the experts to stay with the companies for longer," demanded the VDMA President.