"We now expect production to fall by 2% in real terms in 2019," said Carl Martin Welcker, President of the German EngineeringFederation (VDMA). This is despite the high order backlog, which in April was sufficient for 8.5 months. This is because these are unevenly distributed across companies and sectors and will not be able to completely cushion the sharp drop in incoming orders by the end of the year. Previously, VDMA economists had assumed a slight increase in production of 1% for the year as a whole. In the first four months of the current year, production in the mechanical engineering sector stagnated compared to the previous year; in April, according to preliminary figures, it was 0.8% below the previous year's figure. Incoming orders in the mechanical engineering sector were 9% lower in the first five months of the current year than in the previous year. Capacity utilization still reached 87.4% in April.

Reasons for the slowdown

In addition to the now clearly noticeable cyclical weakening, the VDMA also blames geopolitical upheavals, which are directly affecting the export-oriented mechanical and plant engineering sector, for the poorer outlook:

• Contrary to many assumptions, the trade dispute between the USA and China has escalated again.
• Brexit has been postponed once again and the uncertainty continues.
• Uncertainty also prevails with regard to the threat of trade restrictions imposed by the USA on the EU.
• In Italy, the budget situation has deteriorated further and the Italian government is taking a hard line against the European Commission.
• The situation in the Middle East threatens to escalate, which will have further negative effects on investments.

Investments postponed or frozen

According to the VDMA, the automotive industry is also undergoing far-reaching structural change, which is also completely unsettling customers and is having a noticeable negative impact on current and future investment projects faster than expected. "All of this is causing customers of mechanical engineering companies to postpone or freeze their investments for the time being," explained VDMA Chief Economist Dr. Ralph Wiechers. Numerous companies in the mechanical engineering sector can still fall back on well-filled order books and thus cushion the decline in orders for a while longer. "However, in order to achieve the existing forecast of a slight increase in production, significantly better data would be required for the coming months. However, it is questionable whether this can be achieved to a sufficient extent in an environment where trade disputes are flaring up again. And even a hesitant economic recovery in the second half of the year would only reach production in the mechanical engineering sector with a time lag, meaning that the industry would no longer benefit in the current year," Wiechers summarized.