“Ripples are now spreading to other key markets.”
It hasn’t hit overall German exports yet. Year-to-date through August, total exports are up 6.6% from last year and are expected to set another record by year-end. Exuberance in Germany’s well-oiled export machinery still reigns.
But beneath the surface, German plant and machinery makers are getting slammed by the recessions in Russia and Brazil, the slowdown in China that officially still doesn’t exist, and the “turbulence” in the global markets, according to a report today by the German Engineering Federation VDMA.
The association represents over 3,100 mostly medium-sized companies in the capital goods industry. Mechanical engineering is Germany’s forte. Many of the companies are world leaders. They cover the “entire process chain” in the mechanical engineering sector, according to the VDMA, including:
Associated tools and components, of process, production, manufacturing, drive-train and automation engineering, office and information technology, software, and product-related services, i.e. from components to plants, from system suppliers and system integrators through to service providers.
They employ over 1 million workers that develop and produce “key technologies for the global market,” with 76% of their revenues derived from exports. Alas, about 42% of these exports are headed to developing economies, including Russia, Brazil, and particularly China.
These economies are now in trouble. And for German plant and equipment makers, things have come unglued. In September, total orders plunged 13% year-over-year. While domestic business edged up 1%, export orders plummeted 18%.
The export crash wasn’t a one-month blip. For the first nine months, overall orders dropped 1%. While domestic orders rose 2%, and export orders from the Eurozone jumped 13%, orders from outside the Eurozone dropped 7%. Hidden in the numbers is the recent deterioration in export orders: Over the three-month period between July and September (as domestic orders rose 8%), total export orders fell 6%, topped off by the 18% plunge in September.
“Mechanical engineering business has become more downbeat again over the course of the year,” explained VDMA chief economist Ralph Wiechers. He blamed “turbulence in China in particular” But “the ripples are now spreading to other key markets.”
This spreading “turbulence in the global markets” is now hitting the mechanical engineering sector, he added. It was “symptomatic for the for the last few months.” And that deterioration wasn’t just in the numbers, he said. It’s now also pressuring the sector’s mood, which has become “clouded over.”
So far, the plunge in exports to developing markets has been “offset” by rising orders from the “traditional industrialized nations,” he said. So now the hope is that growth in these industrialized nations will somehow continue despite the turbulence in the global markets, the recessions in Russia and Brazil, and the slowdown in China, whose imports are going through a process much worse than a hard landing – they’re crashing.
After having already reduced its growth forecast in the summer to 0% for 2015, the VDMA now sees “a continuation of the stagnation” for 2016.
Perhaps unwittingly, he expressed the hope of many: that the “turbulence in the global markets,” the recessions in some of the largest developing economies, the deterioration in China, and the lethargic economy in the US won’t lead to anything even worse than, as he said, “a continuation of the stagnation.”
But China may be having even bigger problems. Suddenly demand for diesel, gasoline, and jet fuel is shrinking. Read… China’s Economy Even Worse than Suspected?