Germany’s Machine Tool Sector Facing a Perfect Storm

Hampered by uncertainty among small and medium customers like job shops, as well as a draconian regulatory environment, the German machine tool industry is bracing for a 3% reduction in production this year, according to the German Machine Tool Builders Association (VDW).

Machine tool production in Germany is predicted to fall to €14.8 billion this year, down from a record volume of €17 billion in 2018-2019. 

This projection comes on the heels of real growth of about 2% in 2023, factoring in inflation. Despite steady business from growth sectors like electric vehicles, wind power, medical, aerospace, and defense, standard machine business performance will remain weak amid headwinds facing the global economy this year. 

“We are currently seeing two divergent developments,” announced VDW Chairman Franz-Xaver Bernhard at a press conference. 

Adding to the downward pressure are high interest rates, which are making machine purchases more difficult to finance. And then there are the strict regulations from Germany and the EU, Bernhard added — particularly the Supply Chain Duty of Care Act and the EU’s Corporate Sustainable Reporting Directive.

Both initiatives are “particularly egregious examples of bureaucratic monsters. They are an additional burden on business and pose a disproportionate challenge to small and medium-sized companies in already difficult times. They fail to achieve their goals and the resulting costs are far too high.”

These initiatives mandate strict reporting and documentation to ensure fair working conditions and environmental protection within the supply chain. 

“Even if it were possible to create transparent supply chains, SMEs lack the power within the market to enforce the required standards [among] suppliers outside their own legal sphere of influence,” Bernhard said. “I firmly believe that it is the task of the government to ensure that the standards are effectively enforced.” 

Orders are notably down since early 2023, especially as 11 months’ worth of backlog is being worked through faster with the resolution of supply-chain bottlenecks.

Exports varied regionally last year. Notably, significant growth in the United States around investments in climate protection and renewable energy spurred exports. India, too, enjoyed growth, while falling consumer demand and real estate difficulties kept growth weak in China.

See key VDW figures, including import and export statistics, here.