"Even after five years, the previous record volume of 17.0 billion euros in 2018/2019 still cannot be matched in nominal terms," laments Franz-Xaver Bernhard, Chairman of the German Machine Tool Builders' Association VDW, at the association's annual press conference at the end of January.

In 2023, production is estimated to have risen by just under 8% in nominal terms to 15.2 billion euros compared to 2022. In real terms, this corresponds to +2% due to inflation, which remains high on average over the year. Exports grew by 9%; the export ratio reached just under 70%. Exports were driven by double-digit growth in America (+23%), while Asia (+8%) and Europe (+7%) only achieved single-digit growth. The USA in particular saw extremely dynamic growth, driven in particular by investments in climate protection and renewable energies. China, on the other hand, experienced weak growth due to falling consumer demand and the struggling real estate sector, which is still ongoing. India, on the other hand, was a beacon of hope and showed a steep upward trend.

Domestic sales did not grow quite as strongly at 5 percent. This also reflects the weaker demand situation among domestic customers. At 89.6% on average last year, companies had good capacity utilization and also increased their workforce again. At the end of 2023, around 66,600 men and women were employed in the sector, 2.4% more than at the end of 2022.

Decline in production expected

The VDW expects a decline in production for the current year. This development is not surprising, as there were already signs of a slowdown in order intake at the beginning of the past year 2023. Now that the order backlog with a range of around eleven months has gradually been processed, aided by an easing in the supply chain, the effects are increasingly being felt in sales and production.

According to the VDW, orders fell by a nominal 10% overall in 2023. The decline was partially slowed by months with stronger project business and was therefore still limited. Domestic demand fell by 14%, almost twice as much as foreign demand.

The global economy will also provide little tailwind in 2024: growth rates for gross domestic product and investments will fall again compared to the previous year. The International Purchasing Managers' Index also indicates a weak global economy in all key markets, particularly in the eurozone and Germany. "In fact, we are currently seeing a split development," reports Bernhard. Growth sectors such as electromobility, wind power, medical technology, aerospace and defense are primarily supporting the project business, while the standard machine business is weaker. Small and medium-sized customers, such as job stores, are uncertain and are holding back on investments. Machine purchases are also more difficult to finance due to higher interest rates. Companies that had prepared for the transformation process at an early stage would therefore be better able to counter the weak demand.

Bureaucracy is a disproportionate burden for SMEs

In addition to the economic development, the regulatory frenzy of the German government and the EU administration is causing the industry great concern. Bernhard cites the European Union's Supply Chain Duty of Care Act and the Corporate Sustainable Reporting Directive (CSRD) as particularly "successful examples of bureaucracy monsters". "They are an additional burden on business and pose a disproportionate challenge to small and medium-sized companies in already difficult times. In addition, they fail to achieve their objectives at far too high a cost," is his verdict.

Both laws stipulate extensive documentation and reporting obligations regarding compliance with fair working conditions and existing environmental protection requirements in the supply chain. "Even if transparency could be created in the supply chain, SMEs lack the market power to enforce the required standards with suppliers outside of the legal scope," says Bernhard. This does not negate the need to respect human rights and environmental aspects in business activities. The discussion alone creates awareness. "However, I am convinced that it is the task of politicians to enforce the standards effectively," he demands.

Long waiting times for licenses for dual-use exports

According to Bernhard, another annoyance is the lengthy approval requirements for dual-use exports. Applications that are processed quickly by the responsible federal export office get stuck in the political process in Berlin. The responsible committees, which issue individual licenses after examination, only meet every three weeks or so, and experience shows that each application is dealt with up to three times. Until then, the applicants do not receive any interim notification and are therefore unable to reliably inform their customers. Even in the case of follow-up projects where the customer has already purchased approved machines or orders from German subsidiaries, the processing of applications often takes a very long time. There is a risk that customers will drop out again if the machine tool manufacturer often only receives approval six to eight months or even longer after the order and can only start manufacturing the machines. This also damages their reputation. "In some cases, companies have a not inconsiderable proportion of their turnover pending approval by the authorities," says Bernhard. His suggestion to politicians is not to question the procedures, but to shorten the processing times, as hardly any applications are actually rejected. To this end, it should be discussed whether the committees should temporarily meet more frequently in order to reduce this bottleneck.