The mechanical and plant engineering industry in Germany is increasingly confronted with economic and regulatory burdens. According to the industry association VDMA, numerous companies are considering making new investments outside Germany, even though they want to remain in Germany.

CBAM: Relocation to non-EU countries is under discussion

"We are hearing from more and more member companies that although they want to remain in Germany, they want to make new investments in other countries with better conditions," said VDMA President Bertram Kawlath at a press conference at the Hannover Messe. A recent survey shows that 40% of the companies surveyed are considering relocating to non-EU countries due to the EU's CO2 border adjustment mechanism (CBAM). More than a third also anticipate job losses as a result of the regulation.

In addition to the CBAM, other EU regulations such as the Critical Raw Materials Act, the Digital Product Passport and new packaging regulations are cited as additional burdens. These lead to more bureaucracy and costs without strengthening competitiveness. The association is therefore calling for structural reforms, including faster approval procedures, fewer reporting obligations and greater digitalization of administration. Tax relief and changes to working time regulations are also seen as necessary.

Economic situation remains tense

In the first two months of 2026, production in the mechanical engineering sector fell by 2.0% in real terms compared to the previous year, while orders declined by 9%. Capacity utilization averaged 77.1% in January. Nevertheless, the VDMA expects a slight recovery for the year as a whole and confirms a production forecast of plus one percent in real terms.

Advancing digitalization and AI applications

At the same time, the industry is pushing ahead with digitalization. According to the VDMA, 31% of companies are already using artificial intelligence productively, while a further 37% are working on pilot projects. Overall, 87% of companies are working on AI applications. 59% have a digitalization strategy, with a further 19% planning one in the short term. Three out of four companies see themselves digitally at least on a par with the competition.

Future technology and potential growth markets

The association sees future potential in humanoid robots, among other things. According to a study, markets with millions of units sold annually and sales in the billions could emerge by 2040. Advances in sensor technology, actuator technology and so-called physical AI are opening up new fields of application, particularly in industrial production.

The defense sector is also gaining in importance. The mechanical engineering sector currently generates around 2 to 5% of its turnover in this area, and this share could double within three to five years. Growth in the double-digit percentage range is expected in the coming years.

International competition is growing

International competitive pressure continues to increase. Chinese suppliers have caught up technologically and, according to the VDMA, often offer their products 30 to 50% cheaper. At the same time, new US tariffs are having a negative impact on export business. Geopolitical uncertainties, rising energy prices and disruptions in supply chains are also having a negative impact on the industry.

Employment in mechanical engineering is declining. At the end of 2025, just under one million people were employed in companies with more than 50 employees, 2.6% fewer than in the previous year. The association expects a further decline.

Brazil is considered an important market in Latin America. In 2025, the country ranked 19th among the sales markets for German mechanical engineering companies with an export volume of around 2.7 billion euros. Products from the drive technology, conveyor technology and food and packaging machinery sectors are particularly in demand.