In November 2014, incoming orders in the mechanical engineering industry in Germany were down ten percent on the previous year. The VDMA German Engineering Association recently announced in Frankfurt that domestic business fell by nine percent and international business was down 11 percent year-on-year.

Based on a three-month comparison, which is less affected by short-term fluctuations, incoming orders rose by three percent year-on-year between September and November 2014. Domestic orders were down six percent, while international orders increased by seven percent.

“After five months, incoming orders fell short of the previous year for the first time in November – by as much as a tenth. Orders from euro area partner countries were the only glimmer of hope. Overall, November is to be seen as a setback,” stated VDMA chief economist Dr Ralph Wiechers with regard to the result.

German machinery and plant manufacturers are confirming the production forecast of 1% for 2014 that they first issued in the summer. “In the first ten months of the year, production of machinery and plants in Germany was up 1.0% year-on-year in real terms. We are therefore very optimistic that we will achieve our forecast,” explained VDMA President Dr Reinhold Festge at the Association’s annual press conference in Frankfurt on Thursday. “All in all, sales of EUR 212 billion and production totalling EUR 199 billion in 2014 mean we exceeded the previous records for both of these figures from 2008 (sales of EUR 208 billion and production of EUR 196 billion),” said Festge.

Employment exceeds the one million mark

“Our employees are the clear winners from this strong overall performance,” emphasised the VDMA President. However, I also see this growth in employment as an important investment in the future.” The number of employees hit the one million mark again in May for the first time since 1993. In October, a total of 1,011,000 people were working in the mechanical engineering industry. That is 1.7% or 16,000 people more than in the same month last year. As reasons for the increase – in light of the moderate production growth – Festge cited primarily the huge challenges (Industry 4.0, pension age of 63, demographic change) that the mechanical engineering industry can surmount only with qualified staff.

Outlook for 2015: Production forecast of +2% confirmed

For 2015, German mechanical engineering companies are maintaining their production forecast of +2%. The production value could exceed the EUR 200 billion threshold for the first time in 2015 at EUR 205 billion. “Our incoming order volume to date has laid the foundations for this. In the first ten months, incoming orders were up 2% year-on-year after adjustment for price changes,” reported the VDMA President.

However, he also indicated that there are still incalculable risks such as the Russia/Ukraine crisis, the sluggish pace of reforms in France and Italy and the restrictive effect on growth from laws introduced by the German federal government in recent months.

Mechanical engineering companies see opportunities primarily in the reindustrialisation process in the US. The low commodity prices are also stimulating the global economy. The decline in the external value of the euro also helps. “In the past, the overvalued euro reduced margins and also prevented a few deals. Of course, it is still the case that strong demand is more important for mechanical engineering companies than a low exchange rate,” explained Festge.

Exports up slightly on previous year’s level

Exports amounted to EUR 112.6 billion in the first nine months of the year, thus slightly exceeding the previous year’s level of EUR 112.1 billion. This represents a nominal increase of 0.5%. The major markets are developing positively: The EU partner countries posted a rise of 5%, while China recorded a 2% increase. The US market grew by 6% and the markets in South-East Asia by 9%. Africa posted growth in both the North region (+11%) and the West region (+7%). The Middle East expanded by 4% in total, benefiting in particular from the upturn in Iran business (+20%).

Weaker demand was experienced by mechanical engineering companies in some major emerging economies and countries neighbouring the EU. Australia, Brazil, South Korea, India, South Africa and Turkey all posted double-digit declines in comparison to the previous year. Deliveries to Ukraine fell by a third, while exports to Russia were down 16%. “This was undoubtedly due not only to sanctions, but also to the sharp drop in the rouble exchange rate and the decrease in oil revenues,” said Festge.

Domestic market on growth track with rise of 3%

The domestic market is also on a growth track. “In the first ten months, sales in Germany were up 3% year-on-year,” reported the VDMA President. “I do not wish to deny that we had expected more. We are one of the victims of the continuing lack of investment in Germany.”

German imports of machinery also increased by almost 5% to EUR 44.3 billion in the first three quarters. Approximately EUR 27 billion came from the EU partner countries. “Our location is therefore not an isolated market, but rather an extremely open and highly competitive market – a fact that everyone benefits from. This is something that we should not forget in light of the discussions regarding the benefits of the Transatlantic Trade and Investment Partnership TTIP,” said Festge.

Politics weakening industrial location – Agenda 2025 is overdue

This is not what an investment-friendly economic policy looks like, said the VDMA President critically on the topic of the political decisions on pension, wage and employment policy that have been made in recent months. “Instead of perpetuating the solidarity surcharge contrary to all previous commitments, the federal government should finally reduce any subsidies to a fixed percentage of, say, 5% or more,” urged Festge.

According to Festge, the lowering of the pension age to 63 is particularly painful for the mechanical engineering industry. A trend survey by the VDMA last week showed that 74% of those who leave companies at the age of 63 belong to the category of skilled workers and master technicians. “We are thus heading for a difficult situation at one of the core areas of production. “This is really hurting us,” said the VDMA President. Politicians must finally remember their responsibility for creating investment-friendly conditions, he commented. “There must not be any tax increases, including hidden tax increases, just because public funds have been plundered under the pretext of social justice. More than enough benefits have been handed out over the past twelve months. “A new agenda, an Agenda 2025, is now overdue,” the VDMA President emphasised. “But for the moment we would be satisfied if politicians would at least stop destroying Agenda 2010.”

The US is the second most important export market and the most important foreign investment location for the German mechanical engineering industry. 13 percent of EU-28 exports to the US originate from mechanical engineering.

Also read: CECIMO expresses support for a Transatlantic Trade and Investment Partnership agreement

Therefore, the VDMA firmly supports the ongoing talks for the Transatlantic Trade and Investment Partnership (TTIP). Especially small and medium-sized industries would benefit from simplified rules and standards on both sides of the Atlantic. According to VDMA estimates, mechanical engineering firms currently incur additional costs of five to 20 per cent to adapt their products to the regulations of the US market.

To illustrate the broad support of the medium-sized mechanical engineers for TTIP, we provide you with entrepreneurial statements. We hope you find them helpful.

In October 2014, incoming orders in the mechanical engineering industry in Germany were up seven percent on the previous year. The VDMA (German Engineering Association) recently announced that domestic business increased by one percent and international business was up nine percent year-on-year.

Based on a three-month comparison, which is less affected by short-term fluctuations, incoming orders rose by seven percent year-on-year between August and October 2014. Domestic orders rose by three per cent, while international orders increased by eight per cent.

“The German economy is evidently more robust than was expected a few weeks ago. As such, our figures for October are an encouraging sign. But we should not let ourselves become overconfident on this basis. A stabilisation is not the same thing as an upturn,” stated VDMA chief economist Dr Ralph Wiechers with regard to the result.

On the eve of the VISION 2014 trade show, VDMA Machine Vision has joined the international G3 initiative on standardization. During the signing in Stuttgart on 03 November, the hitherto G3 members AIA-Advancing Vision+Imaging, Japan Industrial Imaging Association (JIIA) and the European Machine Vision Association (EMVA) welcomed the new member.

“Machine Vision Standards are accelerating the use and hence, growth of machine vision”, said Klaus-Henning Noffz, member of the board of VDMA Machine Vision, on the occasion of the signing.

“VDMA Machine Vision with its expertise and membership strength in system integration is looking forward to share this knowledge within the G3 initiative and to support the further development and promotion of international standards. I am happy to now officially join the international cooperation agreement on global coordination of machine vision standardization.”

Jochem Hermann, EMVA board member said on behalf of the three founding associations: “This is a positive step in a sense that more associations join the idea of commonly promoting standards which is beneficial for the development of the whole industry.”

The signing of VDMA’s joining the international standardization corporation took place exactly five years to the day after the founding signature of G3.

Standardization: Key To Success And Wider Use Of Machine Vision

Standards facilitate the use of machine vision and integration of individual components into a complete system with optimum functionality. They cut down on development time and investment costs and also accelerate time-to-market. Standardization enables companies, in particular SMEs, to act globally and to better plan medium-term product developments. Customers benefit from long-term supply guarantees price stability, comparability and exchangeability of products and components. In addition, they facilitate the internal development of know-how and experience.

Machine Vision: A Mature Industry

The development of machine vision has been spectacular. The VDMA market survey goes back to 1995 and a comparison of key parameters from then and now shows how quick machine vision technology has succeeded in penetrating the most diverse fields of application: The industry turnover of 230 million euros in 1995 has increased over sixfold to more than 1.6 billion euros last year. The growth impetus came mostly from exports: While domestic turnover stagnated, exports from Germany went up by 15% in 2013. The export share rose from 55% to a new all-time high of 58%. Due to a very favourable order intake in the first five months of this year, the German machine vision suppliers are expected to expand their sales volume by 10% minimum in 2014 exceeding a sector turnover of close to 1.8 billion Euro. According to the latest

VDMA market survey, the sector turnover in Europe grew even by 10% in 2013, with a further growth expectation of 12% in 2014.

Foreign demand is increasing – domestic demand is catching up

The latest monthly VDMA incoming order index for machine vision indicates that turnover of machine vision will be growing further. Domestic order intake has been undergoing a robust growth. Strong momentum continues to come from abroad, in particular from Asia and the USA. “All over the world we see a strong demand for automation solutions and machine vision benefits as well. 100% quality checks keeping up with production speed and highest process reliability– it would be difficult to master the increasing requirements of a modern production without machine vision,” said Munkelt.

Growth market China

In the past few years China has been the most dynamic market for machine vision from Germany. Except for the 2009 crisis year, exports to China have risen significantly above average. Since 2008 turnover has more than quadrupled. In 2013, turnover rose by 23%, compared to 2012. With a share of now 10% in total turnover, China already ranks second after North America.

Sales figures of industrial robots are a good indication for the level of automization and of the further development of the turnover of machine vision. According to the International Federation of Robotics (IFR), sales of industrial robots in China are expected to increase at least 25% on average per year from 2015 to 2017 reaching 100,000 units in 2017. By 2017, more than 400,000 industrial robots will be installed in the factories of China – many of which will be equipped with “Robot Vision – Made in Europe”.

Embedded Vision

Even before the discussion about “Industry 4.0″came up in Germany, machine vision had been dealing with challenges that an increasingly networked production brings along. Over the last years, machine vision systems have been evolving from pure inspection systems to production optimizers and as “Embedded Vision”, they nowadays play a key role in the production process.  Machine vision systems collect data, interpret and evaluate them. By proper selection and preparation of data, they can identify trends as well as potential sources of fault in the production process. The number of possible applications of machine vision systems will be even more increasing in the future due to the high availability of components,  standardised interfaces, improved computer performance as well as shifting essential components to the Cloud.

Beyond the factory environment, embedded vision systems increasingly play a greater role. Whether in the medical technology field, in the food industry or in logistics: performance-adapted systems, often with a small form-factor, are needed to perfectly implement classical applications of machine vision like identification tasks.

Machine Vision: A developing industry

The development of machine vision has been spectacular. The VDMA market survey goes back to 1995 and a comparison of key parameters from then and now shows how quickly machine vision technology has succeeded in penetrating the most diverse fields of application:

The industry turnover of 230 million euros in 1995 has increased over sixfold to more than 1.6 billion euros last year. In the same period the average enterprise size increased its number of employees from ten to almost 50 employees. In 2013 the German machine vision industry increased its number of employees by nine percent to almost 8,100. The export share in 2013 accounted for 58 percent.

Good Future Prospects

Machine vision has been conquering many new fields of application, in and outside the factory. Improved quality, greater reliability, increased safety and cost-effectiveness are benefits that are just as crucial in non-manufacturing contexts as in the realm of industrial production. In 2013, turnover of machine vision in non-industrial sectors grew by 25 percent raising the share of non-industrial applications in overall turnover to almost 29 percent.

Intelligent traffic systems accounted for the highest share in total turnover of non-industrial applications, followed by medical technologies, logistics, postal sorting as well as safety and surveillance.

Increasing standardization, simplification and intuitive user interfaces, greater efficiency, improved computer performance and miniaturization remain real growth drivers.

“We are forecasting sales of EUR 210 billion for 2014,” commented VDMA President Dr Reinhold Festge at the Association’s press conference at the 7th Mechanical Engineering Summit in Berlin. Ten years ago, in 2004, sales in the mechanical engineering industry amounted to EUR 143 billion. “This represents growth of 46% in a decade,” Festge observed.

Germany as an industrial location needs investment

With the economy currently stumbling, Germany urgently needs public and private investment. “But let us make one thing clear: no financing through new taxes!” warned the VDMA President. He added that the German Federal Government had recklessly squandered available funds on the pension at 63 and the increase in the insurance periods recognised for bringing up children (Mütterrente). “This policy is now coming home to roost,” he said. What companies need is clear: “An investment-friendly climate is essential if we are to defend our position as an industrial location.” Festge noted that the measures introduced by the German Federal Government have not helped matters. Instead of continuously looking to redistribute funds – e.g. with the pension at 63 and the minimum wage – it would be better to establish reliable, forward-looking conditions for investments in innovation, modernisation, education, research and development in order to improve the long-term growth outlook.

Production growth for mechanical engineering firms remains at 1% in 2014

All in all, mechanical engineering firms remain confident with regard to 2014: “We should not talk down the German economy. Our incoming orders in the period from June to August were 3% higher than in the same period of the previous year, so there is no need to discard our target of production growth of 1% for 2014,” commented the VDMA President.

At EUR 87.7 billion, the export volume in the first seven months of 2014 was down around EUR 500 million year-on-year. This was due to the failure of global economic development to meet original expectations. Direct cancellations of deliveries to Russia amounted to around 20% in the first half of 2014. The negative trend was exacerbated by the excessive way in which the EU sanctions were handled in Germany. “A bitter blow for us: Providers from Asia, and China in particular, have immediately filled the gap and German companies are losing their reputation as reliable suppliers that they have built up over many years,” explained the VDMA President.

18,000 jobs created in twelve months

In August 2014, German mechanical engineering firms had a total of 1,008,000 employees, 1.8% or 18,000 more than in the same month of the previous year. In May 2014, the number of employees reached seven figures for the first time since 1993. “The excellent workforce figures are a measure of the confidence within the industry,” the VDMA President emphasised. “Firstly, a number of employees will retire over the coming years, including as a result of the pension at 63. Secondly, many regions and occupations are already experiencing a shortage of qualified labour. Mechanical engineering firms are therefore taking precautions to ensure that the next generation of specialists and managers are in place in good time. This serves to underline their belief in the medium-term growth opportunities here in Germany,” Festge reported.

Continued positive outlook for 2015

Mechanical engineering firms are forecasting production growth of 2% for 2015. “Although this does not represent a particularly dynamic development, an upturn is overdue following the somewhat languishing performance in 2013 and 2014, if only from a cyclical perspective,” noted the VDMA President. “However, a combination of intelligent structural reforms, increased public and private investment and a low-valued euro would give our growth considerable impetus. Until then, we will have to satisfy ourselves with the knowledge that positive impetus for export growth will only be provided by the depreciation of the euro and the resulting improvement in our price competitiveness.” Various factors have prevented this cycle from taking hold across the board. With France, Russia and Italy, three of the top export markets alone have regularly been the source of negative headlines.

Mechanical engineering firms look to the future markets of Africa, China and the USA and the TTIP free trade agreement

“The USA will become more important, China will remain relevant and Africa will offer considerable opportunities.” This is the VDMA President’s summary of the future outlook for mechanical engineering. All in all, growth in demand for equipment is expected to come in particular from the US industries that are benefiting from low energy prices, such as petrochemicals. The US automotive sector will also continue to enjoy substantial investment. This is why TTIP is also of crucial importance. “The USA is already our second most important export market and our most important foreign investment destination. But things would be much better still if there were no technical and bureaucratic barriers, for example. There is a simple equation that is evidently yet to find much of a sympathetic ear in the public debate on TTIP: lower tariffs and barriers to trade will lead to improved export opportunities, higher sales and more – and more secure – jobs,” Festge emphasised.

“TTIP would be a real stimulus plan, and one that would come free of charge. And we simply cannot afford to let down the USA simply because we in Germany are obsessed with the dangers of chlorinated chickens.”

Current developments in trade with China are also highly encouraging. Following two weaker years in 2012 and 2013, exports by the German investment goods industry saw year-on-year growth in the first half of 2014. This underlines the positive investment environment in the country and shows that high-end products from Germany are still held in high regard by Chinese customer sectors.

Africa: A continent with potential

The VDMA believes that Africa offers considerable growth potential for its member companies. Machinery with a total value of around EUR 4.4 billion was exported to Africa in 2013, an increase of more than 11% on the previous year. Although the growth in exports slowed somewhat in the first few months of 2014, this was primarily due to the lower level of exports to the Republic of South Africa, the continent’s largest individual market. By contrast, Algeria, Nigeria, Ethiopia, Kenya and Namibia have all enjoyed extremely positive development in 2014. “Despite this, we face competition from Asian mechanical engineering firms in Africa, and there is certainly still room for improvement when it comes to the market share for ‘Made in Germany’ machinery,” Festge commented. “Accordingly, we would like to see a strategy for Africa that is stringently coordinated between the individual ministries. One particular issue is the more flexible use of Hermes instruments. German companies are at a disadvantage compared with other nations when it comes to financing on the African continent in particular.”

Technological leadership requires innovation

In order to drive forward innovative topics such as “Industry 4.0” or additive manufacturing – also known as 3D printing – the VDMA is once again calling on politicians to reintroduce digressive depreciation for an unlimited period. “This would reflect the actual depreciation of investments and the need for modernisation, facilitate investment financing, and increase the attractiveness of Germany as an investment location,” noted the VDMA President.

Festge added that Germany was only well positioned in relation to the politically and economically reform-resistant nations of southern Europe. This is due to the failure of policies to inspire confidence or send out clear signals in favour of higher growth and employment. “The low level of investment has long been endangering Germany’s competitiveness as an industrial location. In the last two years alone, investments in equipment have declined by almost 3%,” Festge reported. “To put it clearly: We are not calling for a stimulus plan. But we are calling for policies that embody a clear commitment to higher growth and employment in the form of reliable regulations that provide greater scope for investment.”