Sentiment rises in German mechanical engineering sector

Sentiment in Germany's mechanical and plant engineering sector is brightening significantly, though the VDMA industry association warned on Wednesday that further job cuts loom in the key industry.

In the third quarter, around 34% of companies rated their current situation as "good" or "very good," up from 28% in July, according to a VDMA survey of nearly 800 companies in the sector conducted in early October.

Around 22% currently assessed their situation as "bad" or "very bad."

The outlook is also improving noticeably: 33% expect conditions to improve over the next six months, up from 25% in July, while only 10% expect a deterioration.

The sector is being buoyed primarily by smaller customer industries such as the defence industry, aerospace and medical technology, according to the VDMA. The electrical and electronics industry was benefiting from high AI investment, it said.

The outlook for the chemicals sector remained difficult, and the crisis in the automotive industry was weighing on engineering sub-sectors such as robotics and automation, the VDMA said.

There is reason for "cautious optimism," said VDMA chief economist Johannes Gernandt. However, the environment for mechanical and plant engineering remained difficult, with geopolitical crises, fierce competition from China and high costs in Germany, he said.

Around 57% of companies in the sector expect nominal revenue growth this year, and 62% expect growth next year. However, job cuts are likely to continue due to uncertain conditions, the VDMA said.

More than half of companies (52%) expect a stable core workforce, but more than 30% said they were being forced to cut jobs. Fewer than one in five companies planned additional hiring (18%).

The many shocks of recent years and the transformation of industry had left their mark, Gernandt said. "Since 2019, around 100,000 jobs have been lost in mechanical and plant engineering at Germany's manufacturing sites," he said.