Mechanical Engineering Industry Corona Crisis - Differences between China, India and Brazil
The corona pandemic has also affected the foreign markets of China, India and Brazil, which are important for mechanical engineering. According to a recent survey of VDMA member companies in these countries, however, China is now sending positive signals, while the crisis in the other two countries is still continuing.
"The Chinese economy is picking up again, even though the situation there has not yet completely eased," says VDMA Chief Economist Dr. Ralph Wiechers. According to the survey, a quarter of the companies surveyed in China still assess the current business situation as poor. "But there is also positive news: As many as 62 % of the local members surveyed qualify their business situation as satisfactory, the remaining 13 % even assess the situation as good," adds Wiechers.
The current order backlog is stated by 60 % of the companies in China as average or above average. However, the mood differs considerably in the individual branches of the mechanical engineering industry: Construction machinery manufacturers or component manufacturers for the construction machinery industry and electrical automation report a much better business situation than, for example, machine tool manufacturers or plastics and rubber machine manufacturers. "One reason for this is probably the strong investment dynamics in the classical and digital infrastructure in China," explains the VDMA chief economist.
The weak spot of China's continued recovery is foreign demand: The majority of the local VDMA members surveyed reported below-average order backlogs from abroad and also expect orders from abroad to decline over the next three months. Domestically oriented mechanical engineering companies or machine builders whose customers primarily serve the Chinese market are thus likely to do better than export-oriented mechanical engineering companies in the foreseeable future. According to VDMA estimates, the export quota for mechanical engineering in China currently amounts to almost 20 % of sales revenue.
Indian Domestic Demand is a Cause for Concern
The survey results among VDMA members in India are much worse than in China: 80 % rate the current business situation as bad, and 45 % said that the situation will even worsen in the next six months. In India, unlike in China, many entrepreneurs are primarily concerned about domestic demand. In addition to demand-side disruptions, many companies report travel restrictions and disruptions in the transport chain between Indian states. "Last year, production in the mechanical engineering sector in India already shrank. Many companies were hoping for a much better year in 2020, but the corona pandemic shattered those hopes," says Wiechers.
With Brazil, the corona pandemic has now also fully hit Latin America. It is the most important foreign market and production location for the German mechanical engineering industry in South America. More than half of the Brazilian VDMA members surveyed assess their business situation as poor. "The demand side in particular is causing the companies difficulties. More than 40 % of companies report that order losses and cancellations have a strong impact on their business operations," says Wiechers. But that's not all: almost two-thirds of companies expect the business situation to deteriorate in the next 6 months.