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VDW (German Machine Tool Builders' Association) is expecting production in the machine tool industry to grow by 9% this year to a volume of 15.5 billion euros — in nominal terms, this is only 10% below the record result of 2018. At the recent annual press conference in Frankfurt am Main, Germany, Franz-Xaver Bernhard, chairman of the VDW, said: “We have largely overcome the effects of the Covid-19 pandemic and this is reflected in the growth in production and in the order levels, which are now only just short of the record result of 2018.“
The industry has entered the current year with a significant backlog of orders. Even though the gap between orders and sales is currently closing, the German Federal Statistical Office is still reporting a 12-month backlog of orders for the machine tool industry. Mr Bernard continued: “This means that companies are well placed to weather any slump in orders in the first half of 2023, as suggested by the most recent figures.”
Capacity utilisation is also rising steadily, having returned to 91.1% in January. The latest VDMA flash survey conducted at the beginning of December shows that 45% of machine tool manufacturers are cautiously optimistic about the current year.
In macroeconomic terms, the forecast is underpinned by the assumption that inflation has peaked with energy and commodity prices beginning to fall again. The lifting of Covid-19 restrictions in China, the largest market, will stimulate business. Other Asian countries such as India and the ASEAN region are also contributing to growth. Global investment is rising for the third year in a row, albeit less dynamically than in the previous two years. International machine tool consumption is benefitting from this.
Chip shortageIn Germany, too, capital expenditure is expected to rise again after three sluggish years. Here, the automotive industry in particular had reined in its spending after the chip shortage made it impossible to produce vehicles. Mr Bernard added: “The machine tool industry has taken advantage of the transformation process among automotive manufacturers and redoubled its efforts to diversify its customer structure. According to our customer structure survey, the share of the automotive sector fell from almost 43% in 2019 to around 31% in 2021.” Making gains, by contrast, are engineering and the manufacture of metal products.
Sentiment has also improved in Germany with the Ifo Business Climate Index for the capital goods and machine tool sectors rising sharply in January and there has even been a turnround in the expectations for the automotive industry. Also, the global Purchasing Managers' Index is flickering upwards for the first time in 12 months. This is particularly apparent in the Eurozone area, particularly Italy, France and Spain, and also in the UK and Turkey.
According to VDW estimates, machine tool production grew by 10% last year, three points more than had been forecast in the autumn of last year. This corresponds to a real increase of 3% and a volume of around 14.1 billion euros. Mr Bernhard said: “At last, more machines can now be completed and delivered, because the supply situation for many metal components has improved.”
However, electronic component supplies remain tight. Following a weak previous year, domestic sales grew by 16%, more than twice as fast as exports at only 7%. Europe came last within the Triad, at -3%. Eastern Europe performed particularly weakly because trade with Russia has largely collapsed. Cumulatively, German shipments have declined by nearly 80% since 2018. Meanwhile, Italy has performed exceptionally strongly in the past two years, driven by a substantial subsidy policy for the purchase of machinery. Exports to Asia rose by 11%.
There was also strong growth in exports to Thailand, India, Japan and South Korea in particular — China was the main driver the previous year. In 2022, China’s zero Covid-19 policy made machine deliveries more challenging and some imports were replaced by local production. Finally, the Americas were the main driving force with a 24% increase, driven by Brazil, the USA and Mexico. As the second largest market, the USA is gaining in importance and, accounting for an export share of 14.7%, is closing in on China, at 18.7%.
The total workforce was put at 65,400 in December 2022 in establishments with more than 50 employees — 2% higher than in the previous year. There has been a 13% reduction in the workforce since the pandemic began in 2019 and production decreased by 17% in the same period. This is attributable not only to the pandemic, but also to the transformation process which automotive customers are undergoing.
Better training and developmentIn a survey, 31% of machine tool manufacturers reported that the shortage of skilled workers is a new and serious challenge that is becoming increasingly acute, and 50% said it is a problem they are already contending with.
Mr Bernhard commented: “The shortage of skilled workers is likely to remain an ongoing issue because of its structural cause in the form of demographic change in Germany. The figures for the engineering sector as a whole confirm how precarious the situation is.”
The number of job openings in engineering is rising much faster relative to the overall increase in personnel: 20 versus 1.3%. Just over half of all engineering companies are planning to take on new staff. However, according to calculations by the German Economic Institute, the supply of skilled workers in STEM fields will at best only cover half of the industry’s needs in the coming years. The Federal Employment Agency reports major shortages in mechatronics technicians, automation technology, metal cutting, mechanical and industrial engineering, and electrical engineering. In the 2021/2022 training year, more than 11,000 of the 97,000 training places offered in engineering-related occupations remained unfilled.
Education experts are urging companies to boost their training programmes to retain existing skilled workers for longer and to provide them with the best possible career opportunities.
Mr Bernhard concluded: “It requires long-term commitment to tackle demographic change on a lasting basis. Further training must be accompanied by creative recruitment solutions to make the engineering professions more attractive for young people. — it is up to all of us.”