German machine tool industry VDW sees a light at the end of the tunnel
Optimism is returning to business, the mood in the economy is brightening and the willingness to invest is increasing. After two years of great restraint, many user industries now need to catch up. However, China is currently the lifeline of the global industry.The VDW presents the latest global figures, data and facts.
Frankfurt/Main, Germany – For 2021, the VDW (German Machine Tool Builders' Association), expects production in the German machine tool industry to grow by 6 per cent to around 12.6 billion euros. On the occasion of the association's annual press conference, Chairman Dr. Heinz-Jürgen Prokop (Trumpf) pointed out that an improved mood in the economy is boosting the willingness to invest. "After two years of great restraint, there is a need to catch up," he says. The global Purchasing Manager Index and the German Ifo Business Climate for the capital goods industry are on course for growth.
China is in the driving seat for the global economy. The USA is also providing a boost following the election victory of US President Biden. "However, a prerequisite for companies to regain confidence and invest is victory over the Corona pandemic and reliable prospects of how the lock-down can be gradually scaled back," says Prokop.
The automotive industry, in particular, the largest customer for machine tools, is benefiting from the upswing in China. Electronics, food processing, logistics, and parts of the medical technology sector did good business during the crisis anyway.
This is set to continue. In Europe, too, investment is expected to rise again by 10 per cent after a hard slump. After two very difficult years for many reasons, this is having a positive effect on the machine tool industry. Oxford Economics, the VDW's forecasting partner, is predicting strong order growth of 35 per cent for 2021. There were indications of this already in November and December. Nevertheless, Prokop sees a difficult road ahead to reach the pre-Corona level.
2020 in troubled waters
In 2020, orders had fallen by 30 per cent due to the Corona crisis, following a decline of the same magnitude a year earlier. All other key figures also slipped deep into the red in 2020: production down 31 per cent, exports down 29 per cent, domestic sales down 33 per cent. The hoped-for upward movement for the current year is therefore starting from a low level.
In 2019, capacity utilization was still more than 88 per cent. Due to the shortage of orders, it fell to just under 72 per cent in 2020. This is comparable to the level of the 2009 financial crisis, with the number of employees falling by an average of 4.5 per cent in 2020 to 70,000 women and men. "However, if you look at the enormous decline in production, it becomes clear that companies want to keep their well-trained employees for as long as possible. For this purpose, the instrument of short-time work is still helpful and necessary," says Prokop.
Internationally, a valiant effort
According to VDW, German manufacturers have done well in international competition - despite the high losses. According to the VDW statistics in terms of production, the industry ranks second after China and ahead of Japan with a share of 16 per cent, while in exports German manufacturers remain the world's leading exporter with a share of 20 per cent, ahead of Japan and China.
China remains the world's largest market with consumption of 18 billion euros and the world's largest importer with imports of 5.4 billion euros, despite double-digit losses. However, the business could become more difficult in the future. "Already, companies are reporting great price and time pressure from Chinese clients," explains Prokop. Besides, intra-Asian trade is to become more permeable with the recently concluded RCEP agreement. This will intensify competition with Japan and South Korea in the Chinese market., the Chinese Government is striving for more independence from technology imports, and there is intense speculation as to whether this can be achieved in the medium term. Many VDW members established subsidiaries in China at an early stage and are continuing to expand them to be a little more independent of the government's economic policy strategies.
Machine tools join VDMA in calling for technology offensive for environmentally friendly mobility
The German machine tool industry sees great opportunities in the Green Deal and the climate protection targets for 2050. With the Euro 7 standard, the EU Commission is now planning to set the limit for emissions from cars and trucks to zero by 2025. "In doing so, it is virtually banning the internal combustion engine and relying entirely on electromobility. According to experts, the internal combustion engine will not achieve zero emissions by 2025, or only at a very high cost," says Prokop, commenting on the plan. Modern internal combustion engines will be indispensable in the medium term to achieve the climate targets. They already ensure emission levels that are 50 per cent below the legal requirements. The use of e-fuels, which is generated from hydrogen using renewable energies, can also very quickly further reduce emissions, especially in the vehicle population. Heavy goods vehicles, mobile agricultural and construction machinery, firefighters, and ships will continue to rely on internal combustion engines for some time to come because direct electrification has technical limitations. Greater climate friendliness in these fields of application can only be ensured with a functioning research landscape and value chain around engine technology. "An abrupt end to the internal combustion engine would put the brakes on technical progress because with Euro 7 no one will invest in the development of internal combustion engines anymore," explains Prokop. There simply wouldn't be enough money. If the internal combustion engine were to be phased out, experts fear that half a million jobs would be at risk in Germany alone.
For this reason, the VDW supports a position paper recently published by the VDMA. It calls for a technology offensive for environmentally-friendly mobility. The aim is to achieve climate neutrality together with the industry and to call on the strengths of companies for the development of new technologies. Therefore, exhaust gas and CO2 emissions should be reduced by many different technologies. The use of hydrogen and synthetic fuels for future vehicles is just as much a part of this as further optimization of the combustion engine, the use of fuel cell technology, and a growing number of battery-powered vehicles. Relying solely on 100 per cent electromobility would lead to an extreme increase in electricity demand, which currently cannot be covered by renewable energy, Prokop said.
"The EU is called upon to initiate such a broad-based modernization and to set the framework for it," he concludes. In addition to the automotive industry, this would also help user industries such as construction and agricultural machinery manufacturers in their transformation process.