Global trade woes hit German machine-tool makers

FRANKFURT AM MAIN: German machine-tool makers are suffering from uncertainty over Brexit and the US-China trade conflict, the VDMA industry federation said Tuesday, as it slashed its annual forecast for the vital sector.

Over 2019, the industry expects production to fall by two percent year-on-year -- a massive downgrade compared to its previous forecast of one percent growth following 2.1 percent in 2018.

"Orders and real production have significantly weakened in the first months of this year," the VDMA said in a statement.

Machine-tool firms employ around 1.3 million people in Germany and booked revenues of 232 billion euros ($262 billion) in 2018.

If output does shrink, it would be the first contraction for the sector in three years.

"The crisis has reached the German machine-tool makers," commented PwC analysts in a note, highlighting growing pessimism among managers.

The risk of a no-deal Brexit and the White House's trade conflicts with both China and the European Union are familiar woes for Germany's export-oriented industries.

But the VDMA also pointed to a budget battle between Italy and the European Commission and rising tensions in the Middle East as potential threats to growth and investment.

And beyond geopolitics, technological transformations are biting too, with vital clients in the car industry in the midst of a complex switch to battery-powered vehicles.

"Machine-tool makers' customers are delaying or temporarily freezing investments," VDMA economist Ralph Wiechers said.

"Even a hesitant revival of economic growth in the second half of the year would only reach machine-tool production with a delay" into 2020, he added.

Berlin forecasts 0.5 percent growth for the whole German economy this year, while the International Monetary Fund is slightly more optimistic with 0.8 percent.

Gross domestic product grew by 2.2 percent in 2017 and by 1.4 percent last year.