The German mechanical and plant engineering industry is facing a turbulent autumn. All key indicators, including economic expectations, sales forecasts and capacity utilisation, point to a continued deterioration in the industry. This is shown by the latest mechanical engineering barometer from PwC Germany.
A survey of decision-makers in the mechanical engineering sector revealed that six out of ten respondents expect the German economy to decline over the next twelve months - a historic low since records began in 2014. The proportion of pessimists has increased by more than 20 percentage points in the last three months and now even exceeds the peak figures from the beginning of the year. More and more experts are also taking a sceptical view of the global economic situation: almost a third are pessimistic, while the majority are still undecided.
‘Global risks such as trouble spots and trade conflicts probably play a major role here,’ says Bernd Jung, Head of the Industrial Manufacturing practice group at PwC Germany and Strategy&, PwC's global strategy consultancy. ‘However, the fact that managers are currently more gloomy about the coming months than they were during the coronavirus pandemic can hardly be explained by the overall geopolitical situation alone. Rather, the industry has structural problems with location factors becoming more expensive, a decline in production and obstacles to innovation in future topics such as sustainability and digitalisation.’
The turnover expectations for the industry as a whole were once again revised downwards by the respondents compared to the previous quarter. Average growth of -4.0% is forecast for 2024, which represents the sixth consecutive quarter in which the industry is expected to decline. This expectation has solidified, as has the negative growth forecast for the respective companies. At first glance, the decline of -0.2% appears less severe, but is more than 2 percentage points below the average since the surveys began in 2014.
The economic concerns are also reflected in below-average capacity utilisation of 84.1%, which represents a decline of 1.5 percentage points compared to the previous quarter. Only just under a third of companies are currently working close to their capacity limits - a historic low that was only reached during the lockdown phase of the coronavirus pandemic.
‘Negative forecasts are the result of the slowdown in productivity and are also an expression of a deep-seated fear of the future,’ observes Jung. ‘This can have a paralysing effect on the innovation engine of mechanical engineering. In fact, we are seeing the first signs of this. Just 16% currently want to increase their investments, 6 percentage points less than the long-term average.’
Too little willingness to invest in sustainability
The reluctance to invest in the sector is mainly due to rising energy and personnel costs. According to 83% of the managers surveyed, increasing cost pressure is a significant obstacle to growth. Furthermore, two thirds of decision-makers are very critical of the regulatory environment, which is now one of the three main obstacles to growth in mechanical engineering. The proportion of critics of the regulatory environment has more than doubled in the past five years, while only 22% see climate change as an obstacle to growth.
Despite sustainability and ESG (Environmental, Social, and Governance) efforts, the industry lacks momentum in these areas. While the majority of executives report pursuing an environmental strategy and prioritising working conditions and equal opportunities, a third of them feel inadequately prepared for future regulatory requirements - an increase of 15 percentage points compared to the previous year. Given this, it is hardly surprising that slightly less than a third of companies have defined a clear sustainability strategy and only 15% regularly publish a standardised sustainability report.
‘Too many companies still tend to pursue KPIs they have developed themselves instead of orientating themselves to scientific frameworks. In short: self-direction dominates empirical evidence. Small and medium-sized companies in particular are at risk of being overwhelmed by the cost and effort of the requirements. Sustainability should create more business opportunities than prevent them,’ says Bernd Jung.
Six out of ten decision-makers surveyed in the mechanical engineering sector expect a downturn in the German economy.
