Machine Tool Leader in Germany Optimistic About U.S. Changes

While global political uncertainties lead to slowing investments and, as a result, to a slowdown in growth of the global machine tool market, Germany’s machine tool industry is said to be well-placed to respond quickly and flexibly to the challenges of this highly volatile environment. According to Dr. Heinz-Jürgen Prokop, chairman of VDW, the German Machine Tool Builders’ Association, the German machine tool industry recorded a 1 percent rise in production output in 2016 as compared to 2015. Production values reached 15.2 billion euros. This positive development is fueled by demand for high-tech machines made in Germany, Mr. Prokop said. In his opinion, the machine tool industry is to a great extent decoupled from general market trends, which can be best illustrated if looking at the two lead markets: China and the United States.

China remains Germany’s biggest export market. Nearly one fifth of all exports (9.1 billion euros, 66 percent export rate) went to China, followed by the United States (up 9 percent compared to 2015), where companies ordered German machine tools worth 934 million euros from January to November 2016. However, Mr. Prokop wonders what the future will look like for the German machine tool industry considering political uncertainties and bleak scenarios currently dominating the headlines in Europe. How will the U.S. market develop?

Mr. Prokop is optimistic. The U.S. is the world’s second most important machine tool market, satisfying 60 percent of its demand via imports. Germany is the second biggest importer (16 percent of all U.S. imports come from Germany) after Japan. If President Trump wants return domestic factory production to its heyday with the creation of 25 million jobs over 10 years, including the return of good-paying factory positions, he will depend on high-tech production technology from abroad, especially from Germany, Mr. Prokop said.

Oxford Economics agrees, and projects demand from the United States to not significantly slow in the medium-term. However, Mexico could be a worry. The market was flourishing in 2015 (exports of German machine tools increased by 75 percent in 2015, decreased again by 11 percent last year) due to huge projects in the automotive industry. But President Trump’s threat to pull the United States out of NAFTA (which includes Mexico and Canada) if he cannot negotiate more favorable terms is watched with great concern in Germany and the rest of Europe.

For 2017, VDW expects a growth in production of 3 percent, which corresponds to Germany’s VDMA Precision Tools Association’s forecast. Lothar Horn, chairman of the Precision Tools Association, says that while he agrees with Mr. Prokop that political uncertainties in some of Germany’s major export markets are expected to pose some challenges for the sector, he is also optimistic for the current year.