Frankfurt am Main, Germany – VDW (German Machine Tool Builders’ Association), expects production in the German machine tool industry to rise by 6 percent to about € 12.6 billion in 2021. The global Purchasing Managers’ Index and the German ifo Business Climate for the capital goods industry are on the path to growth. Stating that the improved mood in the economy is raising the willingness to invest, Dr Heinz-Jürgen Prokop, Chairman, VDW, at the association’s annual press conference said, “After two years of great restraint, there is now a strong need to make up ground.”
China is the global economy’s principal driving force and is attributed to the growth of the automotive industry (the largest customer for machine tools) in particular. The USA, too, is providing a bolster after US President Biden’s election victory, however, the prerequisites for companies’ regaining their confidence and investing are beating the corona pandemic and sketching out a sensible roadmap for gradually emerging from lockdown.
Electronics, food processing, logistics and parts of the medical technology sector have been doing good business anyway during the crisis, and it is set to continue. In Europe, too, investments are expected to rise again by 10 percent after the major downturn. The VDW’s forecasting partner, Oxford Economics, forecasts strong growth of 35 percent for orders in 2021. In November and December, there were already indications, but it will not be easy to get back to pre-corona levels.
A turbulent and dramatic year
In 2020 due to the corona crisis, orders fell by 30 percent (like the previous year), and all other key figures also dropped into negative territory (production was down 31 percent, exports down 29 percent, domestic sales down 33 percent). The expected turnaround is therefore starting from a low level in the current year.
The capacity utilization was still at 88 percent in 2019, which was down to just under 72 percent in 2020 because of a decline in orders. The annual average of workforce numbers fell by 4.5 percent to 70,000 men and women in 2020. “Nevertheless, given the sharp decline in production, it is obvious that companies are trying to keep their highly skilled employees for as long as possible. The instrument of short-time work remains useful and necessary here,” asserted Prokop.
German manufacturers strong international performance
German manufacturers have performed well internationally despite the high losses. The German industry accounts for 16 percent of international production, ranking behind China but ahead of Japan. It also remains the world export champion, ahead of Japan and China with a 20 percent share.
China remains the world’s largest market with € 18 billion consumption and the world’s biggest importer, with an import volume of € 5.4 billion despite the double-digit losses. However, the business could become more difficult in the future as companies are already reporting strong pressure on prices and deadlines from Chinese clients. Furthermore, the recently concluded RCEP trade agreement aims to facilitate intra-Asian trade, intensifying competition with Japan and South Korea within the Chinese market.
Finally, the Chinese government is striving to reduce its dependence on technology imports and there is intense speculation as to whether this can be accomplished in the medium term. Many VDW members were quick off the mark in establishing subsidiaries in China and are continuing to expand these to reduce their own exposure to the government’s economic policy strategies.
Technology offensive for environment-friendly mobility
The German machine tool industry sees opportunities in the Green Deal and the 2050 climate protection targets. The EU Commission intends to set the emissions limit for cars and vehicles to zero by 2025 with its Euro 7 standard. “This will more or less exclude the internal combustion engine and encourage Europe to rely fully on electric mobility. According to experts, it will not be technically possible to achieve zero emissions in internal combustion engines by 2025, or only at a very high cost,” explained Prokop commenting on the project. In fact, modern combustion engines are already yielding emission values that are 50 percent below the legal requirements and will be indispensable in the medium term for achieving the climate targets.
In addition, the use of hydrogen-based e-fuels (generated with renewable energy) particularly in existing vehicles, can help to achieve further significant reductions in emissions. Heavy goods vehicles, mobile agricultural and construction machinery, the fire brigade and ships will continue to rely on internal combustion engines for some time to come due to the technical limitations to direct electrification. Only a functioning research environment and value chain for engine technology can ensure greater climate-friendliness in these application areas. “An abrupt end to the combustion engine would slam the brakes on technical progress because Euro 7 would kill all further investment in engine development,” added Prokop. There simply would not be enough money and if combustion engines are phased out, experts fear that half a million jobs would be at risk in Germany alone.
Therefore, the VDW supports the conclusions of a recently published VDMA position paper. It calls for a technology offensive in favour of environmentally-friendly mobility. It seeks to ensure that organizations work with industry to achieve climate neutrality and rely on companies’ strengths in developing new technologies. For this reason, many different technologies to reduce exhaust gas and CO2 emissions should be deployed. The use of hydrogen and synthetic fuels in vehicles and further optimization of the combustion engine, the use of fuel cell technology and an increasing number of battery-powered vehicles, will be included in the future. This would also support the transformation process in user industries such as the construction sector and agricultural machinery manufacturers, besides the automotive industry.
“Relying solely on electromobility would lead to an extreme increase in electricity demand, which could not currently be covered by renewable energy,” concluded Prokop. “The EU is called upon to launch a broad-based modernization campaign and to provide the required framework.”
Image Source: VDW