German mechanical engineering companies increased their exports to a record level last year. Despite the weak economy and uncertainty surrounding the war in Ukraine, exports grew by a good six percent year-on-year to 192.4 billion euros, as the industry association VDMA announced in Frankfurt on Monday (13.02.2023). However, higher prices in the wake of inflation drove up exports. Adjusted for prices, they fell by 1.3 percent.

"Price effects have a positive impact on the annual balance sheet. But the result is also respectable in real terms," said VDMA Chief Economist Ralph Wiechers, referring to the preliminary figures from the Federal Statistical Office. The sharp decline feared by many did not materialize in 2022.

The fourth quarter in particular was strong with a nominal increase of 9.3 percent, Wiechers explained. The disruptions to global supply chains had continued to dissipate. "In addition, the export expectations of machinery and plant manufacturers have recently risen - a good omen for the start of 2023, which is still a new year."

Last year, the USA remained the most important export market for the mechanical engineering sector, which is a key German industry with more than one million employees. Exports to the USA grew nominally by 20 percent to 24.8 billion euros. Mechanical engineering companies benefited from the weak euro against the dollar, as it makes goods cheaper for customers outside the eurozone.

Exports to China, however, fell by 2.3 percent to 18.9 billion euros. This means that almost 13 percent of German machinery deliveries went to the USA and just under ten percent to China. While the US economy was very robust, growth in China's industry weakened from the second quarter onwards, it was reported.

However, Europe was even more important as a sales market for mechanical engineering: exports to the EU rose by five percent to 84.4 billion euros, meaning that almost 44 percent of exports went to EU partner countries. Russia, on the other hand, only plays a minor role. Exports of machinery to Russia fell by almost half to 2.8 billion euros due to the sanctions imposed as a result of the war in Ukraine.

The German mechanical engineering industry has had a year full of adversity. Nevertheless, the VDMA assumes that production in the sector will still have grown by one percent in 2022, adjusted for price.

For this year, the VDMA expects a slight real decline in production of two percent. This is because the environment remains difficult: growth in China is weakening, the war in Ukraine is keeping energy prices high, economists believe that high inflation will only decline slowly and the central banks' interest rate hikes are making investments more expensive.