Good start - but no sign for relief
At the beginning of the year, mechanical engineering in Germany experienced a surprisingly good start. In January, incoming orders rose by 7 percent in real terms compared with the previous year.
"Unfortunately, this is not a sign of a sustained economic recovery. The increase is mainly due to a number of large orders that were booked in January. We must also expect that the effects of the corona crisis will be clearly reflected in the order figures of the months now to come," said VDMA Chief Economist Dr. Ralph Wiechers.
Domestic orders in January were particularly positive (up 11 percent), but mechanical engineering companies also received 8 percent more orders from non-euro countries. In contrast, orders from the euro partner countries were down 4 percent. Overall, foreign orders thus increased by 5 percent at the beginning of the year.
In the three-month period from November 2019 to January 2020, a total of 5 percent fewer orders were booked (domestic orders down 3 percent, foreign orders down 6 percent). Orders from the euro countries were 8 per cent down, while orders from outside the euro zone were 5 per cent down.
Corona virus and supply chains
The loss of production in China due to the corona virus will probably also cause losses in the German mechanical engineering sector. China is not only the second most important buyer of German mechanical engineering products. In 2019, the People's Republic was also Germany's most important foreign supplier of machinery, components and parts. "We must expect restrictions along the supply chains from China to Germany," is the expectation of the VDMA chief economist. In a new analysis, the VDMA economists conclude that around a quarter of all preliminary work in the German mechanical engineering industry comes from abroad. The Chinese share of value added alone is now likely to have reached around 3 to 4 percent. "At first glance, this may seem small. But the global value chains are closely interlinked. If individual key components, such as a highly specific control unit manufactured in China, are missing, the production process will be seriously disrupted if no other suppliers can step in. Ultimately, this can mean that a machine cannot be delivered to the customer," explained Wiechers.
"We must expect that the effects of the Corona crisis will be clearly reflected in the order figures of the coming months."