According to the Economic and Steel Market Outlook 2018-2019/Q2 2018 Report from the Economic Committee of the European Steel Association (EUROFER), in 2017 the EU mechanical engineering sector posted six percent production growth, the sector’s best performance since 2011.
According to EUROFER, after several years of underspending on machinery and equipment in the aftermath of the global financial crisis and the euro zone crisis, business conditions in the EU improved markedly in 2017. Rising capacity utilization and profits in the industrial and construction sectors boosted business confidence. Combined with low cost and easy access to finance, pent-up demand for machinery and equipment was unleashed and resulted in a sharp rise in capital expenditure over the year.
The report stated that business conditions remained very robust in the first quarter of the current year. Owing to very strong order intakes in 2017, high production backlogs will for the time being guarantee a healthy workload in most subsectors of the mechanical engineering industry in the EU. Production activity in the first quarter is estimated to have grown by 4.8 percent year on year.
However, while economic fundamentals suggest that global demand for machinery and equipment should expand at a solid rate over the forecast period 2018-19, the current strength of the euro could have a negative impact on orders from abroad going forward. An even more serious risk to the export potential of this sector is the current protectionist tendency in US government policies. Tariffs applied within the framework of Section 232 on steel and aluminum products shipped to the US could trigger a vicious circle of affected US trade partners taking retaliatory measures which in turn could trigger US counteractions. As such, this threatens to distort international trade relations and hinder access to foreign markets.
It is therefore expected that production activity growth will gradually moderate to four percent in 2018 and 2.3 percent in 2019.