Order numbers continue to plummet
Things could be better for mechanical engineering at the moment. The industry association VDMA has now announced that the number of orders for the seventh month in a row is already below the previous year’s level. The current level is causing unrest.
German industry continues to be on a downward trend. Many sectors are struggling with a declining number of orders. The number of orders in the manufacturing sector was around 2.7 percent lower than in the previous year and even 5.6 percent lower than in the previous calendar month. Mechanical engineering plays a particularly important role here. Orders in the industry have been declining for eight months now. Meanwhile, an improvement is not in sight. Compared to the same period of the previous year, the number of orders was around three percent lower.
“Although the result was less gloomy than in the previous months,” says Ralph Wiechers, head economist at the VDMA. If you look at the three-month comparison of the months May to July, you can see a decline of eight percent compared to the previous year’s figure.
According to Wiechers, the figures will not improve soon. “The trend continues to point downwards, and business and export expectations remain pessimistic in view of the economic and political risks for the second half of the year”, he added. The situation is also already very noticeable in day-to-day business. While capacity utilization in January was still 89.2 percent, it is now only 86.6 percent – with a downward trend.
According to the VDMA, orders in 2018 were enough for an average of 8.7 months. Now, the declines in orders are almost enough for the same period. Companies in the sector are therefore currently having to make a much stronger living from their current orders.
The losses are occurring both at home and abroad. It is even the case that the number of orders in the euro countries has grown, but this figure is overshadowed by the extremely high decline in the non-euro countries.
International trade conflicts such as Brexit or the situation between the USA and China are increasingly becoming a burden.
“On her trip to China, Chancellor Merkel must once again make it clear that the trade dispute is not only having bilateral effects, but is increasingly affecting the global economy and creating greater uncertainty,” explains Klaus Mittelbach, Chairman of the Management Board of the German Electrical and Electronic Manufacturers’ Association (ZVEI).
The electrical engineering and electronics industry are also far from doing well. Overall, the minus at the end of the first six months was around 1.6 percent. As a result, the range of orders on hand has fallen from 3.4 to 3.1 months of production. “It will now be very difficult to actually achieve our production forecast of plus one percent,” concludes Chief Economist Andreas Gontermann.
Added to this is a slump in the business climate, which has slipped below zero for the first time since October 2014. “The current situation was assessed significantly worse than in June, but general business expectations have also dropped,” says Gontermann.
The forecast for the mechanical engineering sector has already had to be corrected several times. Production is expected to fall by two percent this year. With around one million employees, the company was still able to record a plus of around two percent in 2018. However, the Leibniz Institute for Economic Research in Halle is still confident, even though the decline in incoming orders suggests that investment in equipment is facing a phase of weakness.
Oliver Holtemöller, the IWH Vice-President and Head of the Macroeconomics Department, predicts that “no serious recession is likely to occur despite this, as evidenced by the continuing very favourable financing conditions and the remaining good labour market situation, which will significantly increase workers’ incomes”.