The order books of the German mechanical engineering and industrial installations industry are full. Foreign business is extremely lively and, in Germany, the orders in October were eight per cent above the level of the preceding year. The good order situation is also having an effect on the number of employed people in the industry. The German mechanical engineering and industrial installations industry has returned to the two-digit growth rates for new orders usual in the last few months. After the relative weak improvement in September with only seven per cent more orders, VDMA, the industrial association, reported growth of 20 per cent for the industry as a whole in October compared to the same period of the year before. This means that the orders in mechanical engineering have risen by a total of 17 per cent since the beginning of the year, said Olaf Wortmann, economics expert of VDMA.  

In October, domestic orders in the German mechanical engineering and industrial installations industry were eight per cent above the level of the previous year in real terms. As early as April, there were single-digit growth rates, whereas, previously, two-digit growth rates had dominated. The level of new orders from inside Germany since the beginning of the year is therefore 13 per cent above that of the preceding year.  

Economics expert Wortmann is expecting only single-digit growth rates in new orders over the next few months as well. However, he pointed out the fact that the industry had already reached a very high level. Clearly, he continued, many companies had brought forward orders in the first six months because, at the end of the year, the period for degressive depreciation on investments expires. In future, these investment goods can only be depreciated with the linear method. For companies, this means that there are less opportunities for offsetting investments against profits.

In contrast to this, the foreign business of the German mechanical engineering and industrial installations industry is continuing to make excellent progress. "Foreign business is driving this dynamic growth", said Wortmann from the VDMA. In October, order from abroad were 26 per cent above the level of the previous year. Altogether, they rose by 19 per cent since the beginning of the year. The German mechanical engineering and industrial installations industry achieved around 75 per cent of its turnover of 167 billion euros from orders from abroad in 2006.   

Only business with the U.S. is not going so well. Here, the industry is feeling the effects of a strong euro and the weak U.S. economy. Accounting for 9.3 per cent of sales abroad, the U.S. is the most important export market for the industry, ahead of France and China. From January to September, exports to the U.S. were 1.4 per cent below the level of the same period in the previous year, according to the VDMA. "Deliveries to the U.S. almost have the effect of a brake on growth", complained Dieter Brucklacher in October before recently standing down as the president of the VDMA. Business with Asia and threshold countries, in contrast, continued to be good.

The boom in mechanical engineering has now engulfed all sectors of the industry. In the last three months, the strongest improvement, with growth rates of over 20 per cent in terms of orders, was recorded in the areas of steelworks and rolling mills, machine tool engineering, construction materials, turbines, robotics and automation. In contrast, the areas of general air technology, motors, packing machines and textile machines did less well. However, as Wortmann pointed out, there were severe fluctuations in the monthly values and the basic effect due to high values in the preceding year.

The good situation in the German mechanical engineering and industrial installations industry is also illustrated by reports from individual companies. Gea, an industrial installations company in Bochum, for example, reports a 30 per cent increase in orders for October compared to the same month of the year before. All divisions had contributed to this rise, reported Gea. The power engineering division alone, said the company, had increased its new orders to around 940 million euros by the end of November compared to 886 million in the same time in the previous year.

The outstanding order situation is also expressed in the number of people employed in this industry. Given that the companies are working to 92 per cent capacity on average, many companies are in the process of expanding their capacity. The normal capacity utilization is 85 per cent on average. At the moment, the industry employs around 929,000 people. This is approximately 45,000 more than one year ago. In spite of capacity expansion, the delivery time for existing orders increased again. According to the VDMA, this was 6.3 months in October compared to only 5.5 months in the year before.

Machines for the world

Growth industry: The mechanical engineering and industrial installations sector is, in fact, a very cyclical business. Since the beginning of 2004, the flagship sector of the German capital goods industry has been experiencing an uninterrupted boom. For 2007, the VDMA has raised its prognosis several times and now anticipates growth of eleven per cent, while conceding that this value could even be exceeded. 2008 looks to be the fifth year of growth in a row.  

Export world champion: With a 19 per cent share of the global market, the German mechanical engineering and industrial installations industry is the export world champion, ahead of the U.S. and Japan. Many highly specialized companies are world market leaders in their particular niche. The greatest competitor frequently comes from a company's own country such as is the case with printing machines. The industry is mainly composed of medium-sized companies. On average, each of the approximately 6000 companies employs 150 people.

Job engine: Currently employing around 929,000 people, the German mechanical engineering and industrial installations industry is the largest industrial employer in Germany, ahead of electrical engineering and the automobile industry. Since the beginning of 2006, employment has been rising dramatically because the companies are coming up against their capacity limits. In 2005, the industry employed 862,000 people on average. Skilled workers and, above all, engineers are urgently needed.  

Source: Handelsblatt