OUTLOOK FOR GERMANY`S MECHANICAL & PLANT ENGINEERING IN 2016

How will the mechanical and plant engineering sector develop over the coming year? This is the issue on the minds of numerous experts, especially if one considers that the industry is crucial to the development of Germany’s export sector as a whole. The start of a new year is a good time to make a final assessment of the previous 12 months and to provide an outlook for the year ahead. The dry numbers confirm that despite the large number of uncertainties, the industry has produced a solid result. The sanctions imposed on Russia, for instance, did not lead to a decline in overall performance. The positive development in business with North America and Asia made a vital contribution to keeping nominal production volumes on a high level at €199 billion. Nevertheless, the industry as a whole returned zero growth in 2015.   

The extended sanctions on Russia will be joined by additional uncertainties in the year ahead. First is the continued decline in the price of oil, which is further compounding the economic crisis in Russia and leading to a persistent drop in the number of orders for German machinery by Russian companies. It appears equally likely that the low price of oil will tighten the purse strings in Saudi Arabia, an important partner to Germany, leading to fewer purchases. The German Engineering Federation  VDMA expects German exports of machinery to Saudi Arabia to fall over 2016. Moreover, the key market of China remains an unknown quantity. The current economic difficulties in the Middle Kingdom have themselves contributed to the declining oil prices. But they have also precipitated a further slump in Germany’s exports to China in 2015. Nevertheless, Chinese companies will continue to range among the main competitors for German mechanical and system engineering firms over the coming year. What’s left is Iran – as one of the few glimmers of hope. The official lifting of sanctions against the country promises a brighter future with new orders for the entire German economy. Siemens and Linde Engineering in particular have achieved significant progress in their negotiations with Iranian partners.

Yet despite the auspicious forecasts that business with Iran may quite reasonably permit, VDMA has nevertheless predicted zero real growth for 2016.  Companies are aware of how foolhardy it would be to rest on the laurels of historical success. However much the label ‘made in Germany’ will remain in demand, the industry is called upon to focus increasingly on the digitisation of production. But the mechanical and system engineering companies should not be left alone faced with this task. There is plenty more that politicians could do to strengthen expansion of digital infrastructure in Germany. 

Despite the current confidence, a few question remarks remain. How will the relations between Iran and Saudi Arabia develop? Will the sanctions on Russia be extended in the summer? Will the price of oil stabilise? It is a wise person indeed who expects the unexpected.