VDMA Cuts German Machinery Forecast Again, Now Sees 2% Production Decline

The German Mechanical Engineering Industry Association (VDMA) has cut its annual production forecast for the second time this year and now expects a real decline of 2 percent, WELT reported. The revision means Germany's machinery and plant engineering sector is contracting for the fourth consecutive year.

The association had already reduced its outlook at the end of June, moving from a modest increase of 1 percent to zero growth. The new projection places one of Germany's largest industrial branches firmly in negative territory for the full year.

A second downgrade in three months

VDMA chief economist Johannes Gernandt attributed the revision to persistently weak output. Production is currently running a good 4 percent below the prior-year level. "The technical capacities are clearly underutilised," Gernandt said, according to WELT.

The association does expect some improvement in the remainder of the year. "The improved order intake should also reach production in the second half of the year, but it will not be enough to offset the weak first half," Gernandt said. He added that the impulses have not yet reached the full breadth of machinery and plant engineering, leaving parts of the sector without any recovery signal.

Underutilisation reaches the labour market

The extended downturn is now visible in employment. Companies cut 21,500 positions in the first half of the year, equivalent to just under 3 percent of all jobs in German machinery and plant engineering. "We are now clearly feeling the economic weakness of the location in our industry's labour market as well," said Fabian Seus, the VDMA's labour market expert.

The cuts run against a demographic profile that points to future shortages. Industry statistics cited by WELT show that a good quarter of the workforce is 55 years or older. After four years of stagnation, many firms can no longer afford to retain important but underemployed skilled workers, nor to refill positions vacated by retirement. "Companies hire again when they invest. But the costs at this location are simply too high for investment," Seus said.

Orders turn before output

Order intake has begun to recover. Between January and July, orders rose 5 percent in real terms, according to VDMA figures. The impulses came exclusively from abroad, above all from non-euro countries. Business expectations have also brightened, the association said.

VDMA economists expect production to return to growth in 2027, forecasting a real increase of 3 percent — a comparatively strong figure that also reflects a low base. They cited a more robust global economy, rising investment in equipment and fiscal stimulus in Germany as supporting factors.

Association presses for reforms

The recovery is not treated as secure. "High geopolitical uncertainty, the elevated interest rate level and the persistently weak competitiveness of Germany as a location can jeopardise the turnaround," the VDMA economists warned. Gernandt added that a durable upswing will materialise only if better investment conditions mobilise private capital and the competitiveness of the German location is restored.

The association is pressing for rapid and far-reaching reforms to the tax system, social insurance and bureaucratic requirements. "Many companies no longer have any understanding for the federal government's hesitation, when everyone knows what needs to be done," Seus said. "Central reforms must be in place by the end of the year, even against resistance." He argued that the current debate over pension reform raises broader questions about the country's capacity to reform, weakening confidence in the government's ability to act and adding further weight to investment decisions. The report was produced for WELT and Business Insider Deutschland.