VDMA Survey Machinery and Plant Engineering Industry Feels Slight Tailwind
Four out of five mechanical engineering companies will see a drop in sales in 2020 despite a strong end of the year. According to the latest VDMA flash survey, however, the outlook for the future is cautiously positive: slight sales growth is in sight for 2021.
The mechanical and plant engineering sector is judging the year 2020 with mixed feelings, according to the results of the 9th VDMA flash survey on the economic impact of the corona pandemic, in which 575 member companies took part. Four out of five companies will close the 2020 business year with a decline in turnover. Nevertheless, the proportion of companies that have managed to avoid a minus has risen from 13 to 21 % since the end of September. "Numerous machinery and plant manufacturers benefited from the economic recovery in the fourth quarter of last year and entered the new year with momentum. As a result, about every sixth company was able to close the financial year with an 0 to 10 % increase in turnover," says VDMA chief economist Dr Ralph Wiechers. "But even the companies with declining sales show lower losses than feared last summer. Based on the 2020 sales figures now available, 42 % of the companies report sales losses of 10 to 30 %. At the beginning of July 2020, 54 % of the companies still expected a decline in turnover of this magnitude," he analyses.
Order Situation Gradually Eases
The order situation has gradually improved in recent months. Currently, 14 % of the companies still report serious order losses. In September of last year, this figure was twice as high. 39 % of the respondents report noticeable losses in incoming orders, while 15 % of the companies no longer see themselves affected by order losses or cancellations, 9 % age points more than the comparable figure in September 2020. Overall, the companies are also somewhat more optimistic about the development of the order situation in the next three months. 23 % of companies expect the easing on the demand side to continue (September 2020: 20 %). In contrast, 13 % believe that the order situation will tighten in the coming months (September 2020: 17 %). "The confidence among machinery and plant manufacturers with regard to demand is considerable. After all, we still have high corona infection rates everywhere as well as lockdowns in many countries and, as a result, a great deal of uncertainty," says Wiechers. "Moreover, the survey took place after the last meeting of prime ministers with the German Chancellor. The restrictions agreed upon there as well as the Labour Minister's decree on home office were thus known to the survey participants.”
Travel Restrictions Remain a Major Concern
According to the survey, 88 % of all companies still see themselves affected by travel or residence restrictions. 79 % of respondents rate the lack of planning as problematic. Last but not least, supply chains are also coming under pressure again. "Last autumn, 10 % of companies reported noticeable or serious impairments in their supply chains. Now, twice as many companies are reporting this, at 20 % ," Wiechers explains.
Capacity Adjustments Declining
The recent noticeable economic revival also had a positive effect on companies' capacity adjustments. 48 % of businesses have short-time work and 47 % are working with hiring freezes. In September last year, 64 % of the companies still reported short-time work, 62 % had imposed hiring freezes. "The decline in short-time work should not hide the fact that the situation on the labour market remains tense. About one in five mechanical engineering companies – 22 % – are currently reducing staff or plan to do so in the foreseeable future," Wiechers emphasises.
For 2021, many companies are nevertheless confident that they will be able to overcome the consequences of the pandemic step by step. About three out of four companies expect turnover to grow. Almost every second company considers a plus between 0 and 10 % to be realistic. Forty-three of the companies expect progress especially in the sales markets of China and North America. On the Chinese sales market, another 14 % of the companies even consider a significant improvement possible. "In contrast, the machinery and plant manufacturers are less positive about the development on the European sales markets, including Germany. In Germany in particular, 65 % do not expect any change for the better," explains the VDMA chief economist.
Setbacks Loom in the First Quarter of 2021
"Even though the results of this flash survey are on the whole more positive than in autumn 2020, this should not hide the fact that we have to expect setbacks, especially in the first quarter. Basically, the situation in the mechanical engineering sector remains extremely unstable and tense in the current year. It is too early to give the all-clear," Wiechers appeals specifically to the collective bargaining partners. Thus, with an expected increase of 4 % this year and a decline of probably 14 % last year, the price-adjusted production level in 2021 is still likely to be around 10 % below the already quite low level of 2019. "For the majority of mechanical engineering companies, therefore, neither the utilisation of physical capital nor that of the people working there will be satisfactory."