Saturday, 15 March 2025
The outlook for Germany’s mechanical engineering sector, a key pillar of the country’s industry, remains bleak. The decline in incoming orders continues, and economic uncertainty is deepening. Jens Stobbe, Manager Risk Services at credit insurer Atradius, warns that the situation is alarming, as demand has not fallen so sharply and widely across industries in the past 15 years. As a result, the sector is not expected to see any growth in 2025.
Production in German mechanical engineering shrank by 5.7 percent in 2024, with a further decline of 0.6 percent forecasted for 2025. Germany’s economic weakness stands out in a global comparison. While worldwide mechanical engineering production is expected to grow by 3.6 percent in 2025, Europe is projected to lag behind at just 1.3 percent. With Germany accounting for more than 45 percent of the eurozone’s mechanical engineering output, its stagnation is weighing heavily on the European market. In contrast, industry growth is expected to be driven primarily by the United States and the Asia-Pacific region.
Unlike the automotive industry, which saw a wave of insolvencies in 2024, the mechanical engineering sector has so far avoided a drastic increase. However, insolvencies still rose in the low double-digit percentage range. Stobbe anticipates a further increase this year due to the sector’s heavy reliance on orders from the automotive and construction industries. By the end of February 2025, reports of non-payment in the sector had already surged by more than 20 percent compared to the same period last year. With numerous plant closures being announced across industries, every shuttered factory means fewer machines needed, further reducing demand.
A significant decline is evident across all sub-sectors of mechanical engineering. According to the German Engineering Federation (VDMA), order volumes fell by 8 percent in 2024, with domestic orders dropping by 13 percent and international orders declining by 5 percent. Given the typical lead time of one to two years for orders, the full impact of the downturn may not become clear until 2026, creating liquidity challenges and an increase in short-time work.
Hopes for a slight recovery in the second half of 2025 remain uncertain and are largely dependent on government policies. Industry experts stress the urgent need for decisive political action, particularly on reducing bureaucracy and stabilizing energy prices. While companies that have successfully diversified their portfolios are in a stronger position, overall economic conditions remain a major challenge for the sector.
Potential growth opportunities exist in high-tech industries, IT, data centers, and cleanroom technology, but none of these fields are traditional strongholds of the German economy. Investment decisions in these areas rarely favor Germany as a business location, with large German construction companies already shifting their focus abroad. Furthermore, the country’s export-dependent mechanical engineering sector remains vulnerable to U.S. import tariffs on EU goods. International competition, especially from Asia, continues to intensify. If a machine from China is 30 percent cheaper but only 5 percent less efficient, businesses have little reason to choose German products.
With no strong domestic growth drivers and increasing global competition, 2025 appears to be another challenging year for German mechanical engineering. Without decisive political measures and a recovery in international demand, the sector may continue to struggle in the years ahead.
Source: Atradius
