Germany: European Machinery Manufacturing Leader
Currently, Germany is holding the second-leading position in machinery exports, with a market share of 10.44% of all machinery exports in 2021. Out of $2.02 trillion in exports, machinery represented $355 billion in gross exports. Machinery exports include several sub-segments: industrial machinery, medical equipment, clocks, musical instruments, weapons, toys, and miscellaneous items. Interestingly, since 1995, machinery exports have always exceeded vehicle exports. Yet, the global share of machinery exports fluctuated between 10% and 14%, whereas the global market share of vehicles has always been above 14%.
The sector also includes goods of high complexity as represented on the figure 2. On the other hand, despite being one of the highly complex subsectors, the 10-year compound annual growth rate (CAGR) was only 0.21%.
The leading importers of German machinery include Europe, with France taking up the leading position, followed by the Netherlands and Italy. Up until the Great Recession of 2008, the machinery market share showed upward trends. However, in the years following the crisis and even today, the market share has been declining due to increased competition from China. Western countries saw more cost-efficient opportunities to outsource industrial jobs to Asia, explained by lower labor and manufacturing costs. Unfavorable pricing triggered a decline in demand for German-manufactured machinery globally. To support the numbers from the Growth Lab, there is supportive evidence taken from the McKinsey report written in September 2023 that mentions labor shortages and falling R&D investments. Germany had approximately 250,000 machinery job vacancies in 2022, more than double the number in 2021. But the supply of skilled younger workers has remained stagnant over the last decade. This limits output and production capacity. Germany’s R&D spending as a percentage of revenue has declined yearly since 2020. This could hamper innovation and competitiveness relative to other regions investing more in R&D, like China.[1]
Within the machinery sector, the leading sub-segments as of 2021 were general machines (not specified), medical instruments, and centrifuges. From 1995 to 2006, the leading exporting sub-segment was computers, substituted by printers in the following year until 2009. Computers were the leading exporting sub-segment in the machinery sector again between 2012 and 2016. Exports of computers peaked due to major German manufacturers like Siemens and Bosch, both producing computers and IT equipment. They are niche high-tech manufacturers in automation, industrial computing that Germany specializes in. Computer exports were supported by many complementary industries (auto, industrial machinery) demanding German computing technology.
In 2024, German machinery production is expected to decline. Weakness in the global economy, lower GDP growth, decreasing investment levels, and purchasing manager indexes highlighting economic struggles in Europe suggest limited external drivers of demand in 2024. Small and medium-sized customers are reluctant to invest due to uncertainty and difficulties financing purchases caused by higher interest rates. This hampers domestic machinery demand. While some sectors like electric vehicles, wind, and aerospace are faring better, the broader machinery industry is facing weaker standard machinery business. Companies that transformed earlier are better positioned.[2]
[1] https://www.mckinsey.com/industries/industrials-and-electronics/our-insights/european-machinery-companies-achieving-balance-through-innovation#/
