Mechanical engineering barometer German mechanical engineering sector defies high cost pressure
Germany — On the whole, the German mechanical and plant engineering sector is in a positive mood. The vast majority of decision-makers (70 percent) are optimistic about the development of the German economy in the coming twelve months - the highest figure since autumn 2018.
The world market shines a favourable light on the export-oriented German mechanical engineering sector: six out of ten managers expect a positive growth period This is the result of the current mechanical engineering barometer of the auditing and consulting firm PwC Germany (PwC). However, it is also evident that the effects of the Corona pandemic will continue to occupy the industry for some time to come, and it still has to improve in terms of digitalisation and sustainability.
Since the last quarter, the turnover expectations of German machine-builders have once again increased significantly, averaging 8.6 percent for the industry as a whole and 9.4 percent for their own companies. This is the highest turnover anticipation of all previous survey cycles. About two-thirds of the managers expect their companies to grow by at least five percent in the next twelve months — the highest approval rating in more than three years. “From a growth perspective, the future of mechanical engineering appears much brighter than that of other sectors,” is the analysis of Dr Klaus-Peter Gushurst, Head of Industries & Innovation at PwC. “Demand from abroad is stable, also due to economic stimulus programmes , supply chains are robust and the recovery of important target industries is progressing. However, we also see that the industry will continue to suffer from the consequences of the pandemic for some time.”
Worries about increasing cost pressure
Nearly two-thirds of the decision-makers say that costs will continue to rise in the coming quarter. This is the second time in a row that the majority of respondents expect an increase. Moreover, it is the highest measured value of all previous surveys. However, only two percent of the respondents still believe that costs could go down. Higher operating expenses for safety and hygiene, for digitalisation and flexibilisation of work exert an influence on costs just as much as more expensive raw materials and intermediate products as well as the general trend of inflation.
Increasing cost pressure is currently the biggest obstacle to growth for the companies surveyed - for the first time since the survey was launched in 2014. It has clearly overshadowed the pandemic itself, but also concerns about political developments abroad, competition and the demand situation. “There is definitely a new awareness of problems in the industry,” Gushurst states. “For a long time, costs were not high on the agenda. Moreover, the goal was always to keep prices as constant as possible. This is now changing: six out of ten decision-makers want to raise their prices in the third quarter of this year.”
Need for action on ESG
In addition to costs, investment-related future topics play a significant role. Because — as this study reveals — the German mechanical engineering sector still has a steep learning curve ahead. On the one hand, there is the digital transformation, which is only slowly getting off the ground and is stagnating at some points despite the efforts made during the pandemic. Only the areas of procurement, marketing and sales are described by the majority of respondents as highly digitised. On the other hand, the survey shows that many mechanical engineers are not yet up to speed with the discussion on ESG (Environmental, Social, and Governance) issues. Although the vast majority state that they are pursuing an environmental strategy and that they are giving further priority to working conditions and equal opportunities, more than half of the decision-makers consider themselves to be insufficiently prepared for the future requirements of customers, regulators and, above all, investors. This result is hardly surprising given that only one third of the companies have defined a sustainability roadmap and one in ten publishes a standardised sustainability report. “This reveals a crucial problem of the industry,” says Daniel Haag, Director at Strategy& Germany, “because 'well meant does not equal well done'. Too many ESG measures and their monitoring still breathe the spirit of a do-it-yourself philosophy, which in part is unlikely to stand up to either investor requirements or a regulatory framework such as the CSRD.”