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German machine tool industry in strong position despite current challenges

German machine tool industry in strong position despite current challenges

Strong decline in production expected in 2025

"The German machine tool industry sees itself in a very strong position within international competition, despite numerous challenges," reported Franz-Xaver Bernhard, president of the VDW (German Association of Machine Tool Manufacturers), Frankfurt am Main, at the association's annual press conference.

German manufacturers have been leaders in production and exports for decades. In 2024, they ranked second behind China in production and shared first place with China in exports. Even in these difficult times, they continue to invest about 3 percent of their sales in research and development. A large pool of top experts is available to participate in joint research projects, working at more than 50 internationally renowned research institutes within German universities. The highly skilled and highly motivated workforce is another key factor behind the sector's development. By November 2024, the sector had slightly increased its workforce to about 65,300 employees. "This allows companies to respond flexibly to fluctuations in demand. It is a solution that has proven effective time and again in previous economic recessions," Bernhard summarized.

Call for bold reforms

Still, businesses need government support. The new government must quickly set the course after the federal elections in late February and propose an effective roadmap for stronger economic growth, the VDW president demands. Reducing bureaucracy, boosting digitization, reducing energy costs and taxes, improving education and revamping infrastructure should be top priorities. "The Supply Chain Duty of Care Act, the Corporate Social Responsibility Directive (CSRD), the Cyber Resilience Act and the European Deforestation Regulation to name but a few are putting unbearable pressure on companies," Bernhard describes the situation. Depending on the size of the company, they have to spend between 1 and 3 percent of their turnover on documentation - money that is then not available for investment.

Decrease in production expected in 2025

The crisis in the auto industry and uncertainties in the two main consumer markets, the U.S. and China, are weighing heavily on the sector. Consumption of machine tools fell 18 percent in Europe, the main consumer market, in 2024. The two largest markets, Germany and Italy, lost 12 and 28 percent, respectively. China stagnated; the U.S. market shrank 7 percent.

According to estimates by Oxford Economics, VDW's forecasting partner, the production of machine tools in Germany fell 4 percent to about 14.8 billion euros by 2024. A year earlier, however, the industry in Germany had posted a significant 9 percent increase in production to 15.4 billion euros. In addition, production at the industry's foreign production sites grew disproportionately by 13 percent to EUR 3.8 billion. This accounted for a quarter of German manufacturers' global machine production.

Exports were down 5 percent in October 2024. Within the Triad, Europe fell the most, by 16 percent. In contrast, America was clearly the driving force, up 17 percent. After being in second place for a long time, the U.S. overtook China as the most important sales market, growing by one-fifth. By contrast, exports to China, the second largest buyer, fell 12 percent. India is now the sixth largest outlet. Exports increased by a significant 36 percent. Thanks in part to strong export activity with South Korea, Asia remained almost at last year's level.

The overall economic environment is expected to improve slightly in 2025 with declining interest rates, normalization of inflation and a rebound in private consumption. Incoming orders, an early indicator of future trends, fell significantly last year, dropping 22 percent in November. Recently, however, there have been signs that the malaise is bottoming out. Domestic sales fell by a tenth, while foreign sales fell by 27 percent, nearly three times as much. The decline is spread throughout the Triad.

Even if demand for machine tools stabilizes and the general economic climate improves slightly, production will fall significantly. The VDW expects production to fall 10 percent to 13.3 billion euros.

Potential in diversification of markets and customer sectors

About half of Germany's exports go to the country's European neighbors. Europe's 450 million consumers have considerable purchasing power, meaning the continent remains a relevant and attractive sales market ready for a recovery in industrial investment. German manufacturers are well established, have a very good reputation and benefit from close geographical proximity.

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