In 2024, the German economy threatens to slide back into recession. The German Chamber of Industry and Commerce even fears the biggest economic crisis in 20 years. What are the reasons for this?
Laura Dorfer: In view of high interest rates, expensive energy, geopolitical risks and a subdued global economy, there is unlikely to be a boom this year either. The reasons are obvious. Climate change, geopolitical upheavals and wars are shaping our times. The European and German economies are facing major challenges such as the restructuring of the energy supply, demographics and digitalization. At the same time, politicians are struggling with tight public budgets. In order to overcome these challenges, we at VDMA are committed to a strong mechanical and plant engineering industry. The last few years have been characterized by short-term crisis management. In our view, it is now time for policymakers to focus more on securing long-term international competitiveness.
The ongoing economic downturn is also leaving its mark on the mechanical engineering sector. How do you assess the situation here and what are the prospects for the valve industry?
Laura Dorfer: The mood among German mechanical and plant engineering companies is subdued at the start of 2024. Due to the high level of uncertainty, there is still a noticeable reluctance to invest and hire new staff. Order backlogs have melted in recent months. The order balance for 2023 is very unpleasant with a real decline of 12%. There are also opportunities arising from the trending topics of digitalization, the development of resilient supply chains and decarbonization. However, we do not expect these positive factors to be able to compensate for all the negative factors this year. This also applies to the valves industry. However, industrial valve manufacturers fared better than the mechanical engineering sector as a whole last year. Nevertheless, orders remained 4 percent below the previous year's figure in real terms. There is still no clear sign of a turnaround. In Germany in particular, orders have fallen more sharply in recent months. On the other hand, valve manufacturers are still doing quite well on foreign markets.
Many companies groan at the high level of bureaucracy and the numerous regulations in Germany. What can be done about this?
Axel Weidner: Bureaucracy has now developed into a tangible disadvantage for Germany as a business location. The regulatory burden at national and international level is already immense. In addition, there is an enormous dynamic, so that almost every day new topics or regulations come onto the table that we in the industry have to deal with. Fulfilling bureaucratic obligations ties up financial and human resources that are no longer available to companies for their actual business activities, value creation and innovation. Highly qualified employees are often involved in this. This is particularly critical in times of skills shortages. Against this backdrop, the importance of the association is clear. By working together with market players, we can tackle problems more effectively. Especially in times of crisis, we notice that more companies are turning to associations. We need a network and an exchange of experience - and this is where the VDMA can score points. The association offers the opportunity for compliance-compliant exchange, bundles the interests of its members and represents them vis-à-vis the relevant stakeholders. This makes it a strong partner for SMEs in times of crisis.
What measures would you like the German government to take to overcome the current economic crisis?
Axel Weidner: I am convinced that Germany will only master the path to a more climate-friendly future with a strong, internationally competitive industry. Good economic policy relies on the creation of favorable general conditions and a growth-friendly environment in which companies compete for the best solutions on their own responsibility. To this end, the tax burden must be reduced to an internationally standard level and corporate tax law must be modernized and made less bureaucratic. Raising taxes is generally the wrong approach, especially in times of crisis. Reducing bureaucracy, on the other hand, is a free economic stimulus program, especially in times of declining growth. New laws and regulations should be designed with the user in mind and checked for feasibility by practitioners from companies before they are passed. At the same time, the influx of new, mostly small-scale reporting and information obligations must be stopped. In addition to national efforts, it is also important to stand up for a strong Europe. However, this also makes it necessary to show an edge vis-à-vis Brussels if corresponding European initiatives are overambitious. As VDMA Armaturen, we therefore very much welcome the fact that the FDP has clearly spoken out against a European supply chain law.
One measure is the planned industrial electricity price. Is that enough to help German industry?
Laura Dorfer: The price of electricity is a location factor in international competition. From the VDMA Armaturen's point of view, the top priority for the German government must therefore be to curb energy costs in general. However, we take a critical view of the concept of an industrial electricity price. We fear that it would be an expensive, incalculable permanent subsidy with a watering can. Instead, systemic measures such as grid expansion, backup power plants and, above all, structural approaches to rapidly expand the supply of electricity would be more sensible and, above all, more sustainable. In particular, it will be crucial for our competitiveness as a business location to maintain affordable electricity. At the same time, we must strengthen our sovereignty and resilience in the EU. A competitive race for subsidies in the EU, on the other hand, must be avoided in the interests of Europe as a business location.
What influence does a small sector like the industrial valves industry have on the entire German economy?
Axel Weidner: There is a good reason why SMEs are regarded as the engine of the German economy. Medium-sized companies create jobs, train young people and shape Germany's competitiveness through their investments. This also applies to the fittings industry, which is predominantly characterized by medium-sized companies. A good example of this is the topic of sustainability. The companies are often firmly rooted locally and are strongly committed to the region. Numerous valve manufacturers have been working sustainably for years and offer a wide range of products and solutions in this area. Whether hydrogen, biogas, LNG or wind power, the fittings industry is one of the main enablers of climate change and we are proud of this.
What technological trends will shape German industry in the coming years?
Axel Weidner: Over the next few years, there will be many new applications for AI in our companies, in public administration, in healthcare, probably in all areas of our lives. In industrial companies, this development will affect all areas, quality assurance such as sales and communication with customers, control of production and personnel management, design and development of new products as well as control and optimization of all internal and external processes. This will hopefully help with the omnipresent shortage of personnel and the challenges posed by the cost screw. The balance between the automated processing of data and the reduction of bureaucracy and the protection of individuals' personal rights will remain a major challenge.
How do you want to support companies with the challenges of the future?
Laura Dorfer: Digitalization has of course been on the VDMA's radar for a very long time as an important fundamental topic in the industry. Predictive maintenance, for example, has become a key element in the industry that is also relevant to the manufacture of industrial valves. With this in mind, we at VDMA Armaturen conducted an innovation tour at the beginning of the year, bringing together experts from the industry with a user to discuss current developments, experiences and challenges in the context of predictive maintenance for industrial valves and to develop new ideas for business models. In our research and technology committees, we regularly discuss the latest topics and trends and explore ideas for joint research projects. In this way, we support our members in keeping their finger on the pulse of the times and positioning themselves for the future on the market.
Despite the gloomy outlook, what are your hopes and expectations for economic development this year?
Axel Weidner: The year 2024 is starting as cloudy as it ended in 2023. It seems extremely doubtful that the general weather situation will improve in the coming months. Many export markets have suffered considerable losses in some cases due to structural changes, and political conflicts make it difficult to make reliable forecasts. Domestic demand has been weakened by people's uncertainty. Structural change in Germany, which is closely linked to the weakening automotive industry and the crisis in the construction sector, poses major challenges for everyone involved. The German industrial landscape is characterized by a shortage of skilled workers, which is being triggered by the coronavirus crisis and the retirement of baby boomers, among other things. The skilled trades and industry are desperately looking for trainees, which is partly due to the fact that there is less and less demand for the “apprenticeship” format, despite the very good employment opportunities.
In the long term, however, I am confident about the future of our industry. The fittings industry has already successfully navigated through many other crises in recent years. The current challenges are therefore an opportunity for our industry to emerge from these times stronger and more resilient. Industrial valves from Germany are traditionally characterized by quality and maximum reliability. Especially in sectors such as oil and gas, the chemical and pharmaceutical industries or the trend topic of hydrogen, these characteristics are a prerequisite for long-term business success - even in the face of international competition.
