There is still a slump in orders in German mechanical engineering. The industry association therefore expects lower sales and falling production in the second half of the year. Things are going badly in other parts of the industry too.
The German machine builders continue to struggle with a weakening investment mood of the customers. In May, real incoming orders, i.e. adjusted for price increases, fell by ten percent compared to the same month last year, as the Association of German Mechanical and Plant Engineering (VDMA) announced today.
“Our picture of persistently weak global investment demand is confirmed,” explained VDMA chief economist Ralph Wiechers. “The backlog of orders for the coming months is still large enough, but the number of companies that are feeling a clear change here is increasing.”
VDMA expects falling revenues in the second half of the year
In a recent survey by the association, 57 percent of companies stated that their order backlog had decreased slightly or significantly in the past three months. The industry is still helped by the long-standing high order backlog, said Wiechers. Sales remained stable in the first half of the year. In the second half of the year, however, “negative rates for sales and production” are to be expected.
In May there was a minus of 18 percent in the traditionally important international business. The decline was particularly evident in business with the euro area (minus 36 percent). In Germany, however, orders increased by nine percent.
“Without the large-scale plant business, domestic orders would also have fallen sharply,” says Wiechers. The downward trend of the past few months continued in May. “Our picture of persistently weak global investment demand is confirmed.”
Crisis in German industry comes to a head
As early as April, orders in the medium-sized industry with more than one million employees had fallen by 20 percent compared to the same month last year. In March, a decline of six percent, the first month since September 2022 with a single-digit minus rate, still gave hope for a trend reversal.
In the meantime, things are still not going smoothly in other parts of the industry either. Business in June was worse than it had been in more than three years. This is signaled by the purchasing managers’ index, which fell by 2.6 points to 40.6 points, as the financial services provider S&P Global announced today in its monthly survey of 430 companies. Only above 50 does the barometer, which summarizes key figures for incoming orders, production, employment, delivery times and raw material inventories, indicate growth.
“The poorer performance is primarily due to the continued decline in new orders across the industry,” it said. As a result, production was throttled for the second month in a row, especially since the order backlog is also getting thinner. “But we would not speak of an emergency stop,” said chief economist Cyrus de la Rubia of the Hamburg Commercial Bank (HCOB). For example, the increase in staff only slowed down in June, and there is still no sign of any job cuts. However, a recession in industry has become much more likely.