The coronavirus crisis has significantly intensified the decline in German machine production this year. It already fell by -2.6% in 2019, and this year it will probably be -14% to an estimated production value of €194 billion, according to the VDMA's production forecast. A few weeks ago, the VDMA was still predicting a decline of 17% in 2020. With the production forecast for 2020, the industry association also corrected its forecast for 2021: "We now expect real production growth of 4% instead of the previously expected plus 2%," said VDMA President Karl Haeusgen at the association's virtual annual press conference.

Economists at the VDMA expect turnover in the German mechanical engineering sector to reach EUR 197 billion this year. For 2021, the industry association is forecasting turnover of 205 billion euros. In comparison: in 2019, this figure was €229 billion.

Uncertain times

However, the forecasts should be viewed with caution, as the high level of uncertainty in the global economy and the progression of the coronavirus situation will continue to affect the mechanical and plant engineering sector. Added to this is the ongoing protectionism and the rapid structural change in the important automotive industry. Haeusgen also warned of liquidity bottlenecks during the upswing. Due to an improved economy and order situation, mechanical engineering companies will have to make advance payments. Although companies have learned from the 2009 economic crisis and have introduced appropriate measures, it is uncertain whether companies' financial resources will still be sufficient after a challenging 2020, said the VDMA President.

Nevertheless: "We are seeing the economic acceleration from the corona valley on the one hand and an acceleration of technological change on the other. This double acceleration holds exciting potential for the European mechanical engineering industry, for all those who find the right answers to the challenges," Haeusgen is certain.

New US administration, new challenges

With the arrival of the new US administration under Joe Biden and Kamala Harris in the White House, the VDMA is also expecting a return to reliability. The new US president is clearly committed to multilateral agreements such as the Paris Climate Agreement and the WTO. Another positive aspect is that Biden's agenda will be characterized by a 'Green New Deal', which is fundamentally different from the Trump agenda. According to the industry association, the planned restructuring of the US industry towards a much more socio-political and climate-oriented economy also promises new opportunities for the European mechanical engineering sector. It is also expected that the "inflationary threats of punitive tariffs to allegedly protect national security will now cease". Nevertheless, Haeusgen warned that although a more predictable trade relationship is to be expected, protectionism with regard to jobs in the USA will continue. "An independent and capable EU on the one hand and a clear transatlantic bond and partnership on the other are not contradictory - on the contrary," Haeusgen emphasized.

Call for new free trade agreements

Germany currently accounts for around 80% of mechanical engineering exports. The VDMA President warned that this model is acutely endangered by increasing protectionism worldwide, for example from the USA and China. According to an estimate by the VDMA, around 35% of exports from Germany to third countries are now affected by trade barriers. The association is therefore calling for free access for machinery and equipment, for capital and also for people on all markets. "If you want free markets, you can't preach water and drink wine," warned Haeusgen.

The VDMA therefore rejects the German government's planned tightening of foreign trade law and foreign trade regulations for investments from third countries. According to the industry association, it is much more important to focus on new free trade agreements between the EU and its most important trading partners, particularly the USA.

The Mercosur states (Argentina, Brazil, Paraguay and Uruguay) are attractive sales markets for machine manufacturers from all over the world. However, European companies are only the third most important supplier of machinery in the region after the USA and China. The VDMA is campaigning for rapid ratification of the Mercosur-EU agreement. Not only because it is an economic agreement, but also because it has a significant political dimension, according to the association. "This agreement offers Mercosur independent room for maneuver and thus prevents dependency. It is based on honest partnership and access to modern industrial technology," explained the VDMA President.

Strong European market

Europe is and remains the most important market for the mechanical and plant engineering industry, with around 43% of all exports going to the EU-27 countries in the first half of 2020. In recent months, the EU has shown that it is capable of acting and irreplaceable, especially in times of crisis. It is therefore all the more important that the blockade by the two member states Hungary and Poland is now quickly ended and the EU recovery plan is adopted. "However, we should not expect miracles from the recovery plan. It is not a quick-acting economic stimulus package, but rather a pro-cyclical package to promote structural change and cohesion," explained Haeusgen.

Climate protection with pleasure, but...

In the coming year, climate protection will remain the central European issue. "The mechanical and plant engineering industry is the enabler of a positive climate and energy future par excellence," emphasized Haeusgen. The EU's great ambition to be a pioneer in climate protection is the right thing to do, he said, and there are great opportunities for the mechanical and plant engineering sector as a result. However, the VDMA President demanded that politicians also take into account the planning horizons in the industry. In this respect, the planned short-term increase in the targets for 2030, which still need to be translated into concrete measures, is problematic. "Centralized control by the state will not get us any further in climate protection either. Instead, politicians should use market-based instruments and put an effective and calculable price on greenhouse gases," demanded Haeusgen.