June 2024

Industry trends
Machines/Engineering
Contractions
continue in Europe
and the US, but a2025 rebound ison the cards

Global overview
Only modest production growth in 2024,
sustained by the Asia Pacific region.
We expect global mechanical engineering
output to increase by 0.5% in 2024.
This modest expansion is mainly due togrowth in Asia Pacific, while activity in North
America and Europe is subdued. Apart fromthe general-purpose machinery segment,
production in the main subsectors is forecast
to contract this year (see chart on next page).

In the Eurozone and the US, tighter
financing conditions and increased
borrowing costs have had negative effect on
capital expenditure, especially in the majorbuyer industries.
However, there are signs that activity isbottoming out in Europe and the US. We
expect global mechanical engineering
production to rebound by 5.1% in 2025,
as growth in Asia Pacific accelerates andperformance in the US and Europe recovers.

The ongoing shift towards electric vehicles
will lead to changes in machinery supply tothe automotive sector, with more emphasison batteries and related electrical equipment.
Demand for machinery to manufacture
conventional powertrains will weaken.
Across all regions, we expect sector growth
to decelerate in the long-term. This mainly
affects Asia Pacific, where China’s pivot to amore services-oriented economy will reducedemand for capital goods.

Industry performance forecast
Europe1Asia and Oceania

Americas

Austria

Netherlands

Australia

Phillippines

BrazilBelgium

PolandChina

Singapore

CanadaCzech Republic

PortugalHong Kong

South Korea

MexicoDenmark

Slovakia

India

TaiwanUSA

FranceSpain

Indonesia

ThailandGermany

SwedenJapan

UAE

Hungary

Switzerland

Malaysia

VietnamIrelandTurkeyNew Zealand

Italy

UK

Excellent
The credit risk situationin the sector is strong /business performance in the
sector is strong compared toits long-term trend.
Good
The credit risk situationin the sector is benign /business performance in the
sector is above its long-term trend.
Fair
The credit risk situationin the sector is average /business performance in the
sector is stable.
Poor
The credit risk in the
sector is relatively high /business performance in the
sector is below its long-term trend.
Bleak
The credit risk in the
sector is poor / businessperformance in the sector is weakcompared to its long-term trend.

June 2024

Industry trends
Machines/Engineering
Mechanicalengineering output:
Global and per region

2022

Global

3.1

2023

2024*

0.4

0.5

Asia-Pacific

European Union
& UK

-1.2

2.0

3.9

Mechanicalengineering output
per subsector

5.1

General purpose
machinery

2022

2023

2024*

1.0

0.6

0.9

0.4

1.5

-0.9

2.2

-2.9

3.5

Agricultural
machinery

6.4

Machineryfor mining
and construction

3.1

3.1

-1.7

3.2

-5.2

4.6

0.8

-4.1

0.4

-6.2

4.9
Machine tools

2025*

5.1

8.2

5.8
North America

2025*

4.8

Year-on-year, % change /*forecast– Source: Oxford Economics

Year-on-year, % change /*forecast– Source: Oxford Economics

Strengths and growth drivers

Constraints and downside risks

High entry barriers. blished players are able to take advantageof the need for major investment in technology to deliver new
machines capable of supporting a wider variety of product mixes
for their customers.

Economic cycle. Many machinery segments depend on demand
from cyclical sectors such as construction and automotive.

Automation. Many industries are increasingly using process
automation and industrial robots, which should stimulate demand
for related machinery equipment.
Technological advances. D printing, AI, IIoT (Industrial Internetof Things) and big data analytics are increasingly used in
manufacturing. Businesses are learning how to take advantageof the massive amounts of data their machines generate. All thisshould result in higher productivity, lower operating costs andhigher margins.

2

Capital-intensity. Machinery businesses often face large
investments and R&D expenditures in order to provide tailor-madeproducts in a market where the preferences of customers areconstantly changing.
Commodity price volatility. The sector is highly susceptible tothe price developments and availability of input materials likealuminium, copper and steel.

June 2024

Machines/Engineering outlook
Americas
Mechanical engineering output

2022

2023

2024*

2025*

Brazil

-2.9

-7.5

-1.3

5.1

Canada

8.6

7.1

1.0

4.8

Mexico

7.9

0.8

-7.3

-1.4

CanadaUnited States

5.5

-2.0

-0.7

3.7

MexicoYear-on-year, % change /*forecast – Source: Oxford Economics

USA

CanadaMachinery demand affected by car
production shutdowns

After a 2% contraction in 2023, we expect
US mechanical engineering output toshrink again in 2024, by 0.7%. The main
reason is the timetable for interest cutsby the Federal Reserve has been pushed
back. The tighter lending conditions havecreated a spillover-effect of reduced businessformation. Demand from automotive as a
key buyer sector has slowed down. That said
construction, in particular civil engineering,has been benefitting from fiscal spending
for infrastructure improvement. This keeps
up demand for the construction machinery
subsector, which is forecast to grow 3% thisyear.

We expect mechanical engineering growth
to slow down from 7% in 2023 to 1% thisyear, as adverse economic conditions,
including higher interest rates, weigh on
business spending. Machinery demand
from automotive is affected by extended car
production shutdowns (a result of significant
model changeovers towards more electricvehicle production).

In the mid to long-term, demand forautomation, digitalisation, and sustainableproduction solutions in manufacturing should
support machinery demand. New technologies
integrated in the manufacturing process willlead to efficiency gains in the mechanicalengineering industry. That said, production ofelectric cars is less machinery-intensive thaninternal combustion engine vehicles.

3

BrazilUSA

Looser monetary policy should help to triggera recovery next year

We expect US mechanical engineering output
to rebound 3.7% in 2025, as macroeconomic
factors become more favourable. Disinflation
should allow the Federal Reserve to start
monetary easing in H2 of 2024, which will
help to increase investment in machinery,
however with a laggard effect of about two to
three quarters. Further public infrastructure
investment and spending in strategic sectors
will help to sustain demand for general
purpose and special purpose machinery.

Industry performance forecast

Construction activity is decreasing amid
weaker new housing investment and lower
infrastructure spending. However, as of Q4
of 2024 a rebound is expected to start, due tolooser monetary policy. In 2025 mechanicalengineering growth is forecast to accelerateby 4.8%, helped by rebounding demand fromautomotive and construction.

Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
Good
The credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in the
sector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

June 2024

Machines/Engineering outlook
Asia PacificMechanical engineering ouput

2022

2023

2024*

2025*

China

0.9

3.4

4.1

6.2

India

-2.3

14.1

2.4

6.9

Japan

5.9

-7.9

-4.4

7.2

South Korea

0.1

-5.4

-0.1

6.6

Year-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Australia
China
Hong Kong
India
Indonesia

China

Japan

Robust growth, but issues in somemachinery segments

Downturn triggered by woes in theautomotive industry

We expect Chinese mechanical engineering
output to increase by 4.1% in 2024 and by
6.2% in 2025. Growth is supported by fiscal
expansion for the manufacturing sector
to grow production capacity, and a loose
monetary policy stance aimed at improving
domestic financing conditions. Mechanicalengineering is supported by government
investment in strategic sectors such as
high-tech, automation, and climate/energy,
mainly benefitting the electrical machinery
segment.

After a 7.9% contraction in Japanesemechanical engineering production lastyear, we expect another decrease of 4.4%
in 2024. The main reason for the decline
this year is a 16% output contraction in
the automotive sector in Q1 of 2024, due
to Daihatsu’s suspension of production
over safety issues. Therefore, downstream
demand for machine tools suffered severely,
and this subsector is forecast to contract bymore than 12% this year.

However, the property sector is still plagued
by weak buyer demand for new homes
and worsening financing difficulties
affecting developers. As a result, productionof construction machinery is forecast
to contract by more than 19% this year.
Additionally, private investment in machines
is affected by low confidence, the issues in
the property sector and uncertainty about theregulatory outlook. Automotive production is
forecast to grow by 4.6% in 2024, supporting
machinery demand. That said, the impact of
the shift to electric vehicles on the machine
tools subsector remains uncertain, due to thelower demand for related items compared to
combustion engines production.
In the mid and long-term we expect Chinese
annual mechanical engineering output tostabilise between 2.5% and 3%, as economic
growth slows down and a shift to a more
service-oriented economy will reducedemand for capital goods.

4

The whole mechanical engineering sector
is affected by weaker capital expenditure.
Despite the Bank of Japan’s accommodative
monetary policy, investments have beenhampered by high capital goods prices andsluggish global investment activity.
Domestic construction activity, which
accounts for 13% of engineering demand, isslowing down, leading to a 5.7% decrease inconstruction-related machinery production
in 2024. However, demand from the ICT
segment is surging, supporting machinery
demand. We expect that orders and demand
for mechanical engineering goods will
start to recover in the coming months, anda production rebound of about 7% in 2025
after two years of contraction.

Japan
Malaysia
New ZealandPhillippines
Singapore
South Korea
TaiwanThailand
UAE
Vietnam
Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
Good
The credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in the
sector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

June 2024

Machines/Engineering outlook
EuropeMechanical engineering output

2022

2023

2024*

2025*

France

-3.7

2.7

-5.3

1.1

Germany

1.0

1.1

-4.1

2.4

Italy

7.5

2.9

-0.6

3.1

Belgium

-12.5

-3.6

-4.7

4.7

Czech Republic

United Kingdom
Year-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Austria

Denmark
FranceEurozone
Expected ECB interest rate cuts should drivea recovery in 2025
After growing 2.3% in 2023 we expect
mechanical engineering output in theEurozone to contract by 2.9% this year.
Higher interest rates have weighed on
the profit margins of manufacturing andconstruction businesses, negatively affecting
their ability and willingness to invest in
machines and related equipment. However,in 2025 we expect a rebound of about 3%
in mechanical engineering production,
as interest rates cuts by the ECB in H2 of2024 should support additional machinery
investment.

Italy
Lower subsidies weigh on the construction
machinery segment
After an expected 0.6% contraction in 2024,
Italian mechanical engineering output is
forecast to grow by about 3% next year.
Expected ECB interest rate cuts in H2 of 2024
should help to shore up private business
investments. Additionally, the government
has refinanced the so-called “Sabatini” law,which facilitates access to credit for SMEs inorder to finance machinery purchases andleasing.
However, the construction machinery
subsector will see only a 2.5% reboundin 2025 after a 15% contraction expected
this year. The main reason is subdued
demand from the building industry as
the “superbonus” scheme (tax credits
for renovations and energy efficiency
improvements) is being phased out.

5

Germany
Machinery insolvencies continue to increase
Germany accounts for more than 45% ofeurozone mechanical engineering output.
German machinery production is expected
to contract by more than 4% this year. The
industry continues to struggle across all
subsectors, due to weak demand fromkey buyer industries like automotive andconstruction and increased geopoliticaluncertainties.
If it doesn’t have to be ‘Made in Germany’quality, competition from China is aserious issue. Except for defence, incoming
orders declined from customers across theboard. Non-payments have increased bydouble-digit rates in H1 of 2024. Last year,
insolvencies among German mechanicalengineering companies rose noticeably,
and we expect another increase in the low
double-digit percentage range 2024. Whilesmaller companies with smaller financial
cushions will be hit first, even larger
businesses could fail.
However, we believe that the German
mechanical engineering sector is still
resilient and internationally competitive.
2024 will be difficult, but a production
rebound of 2.4% is expected in 2025.

Germany
Hungary
Ireland
Italy
Netherlands
PolandPortugal
Slovakia
Spain
SwedenSwitzerland
TurkeyUK
Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
Good
The credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in the
sector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

June 2024

Atradius
David Ricardostraat 1 · 1066 JS Amsterdam
P.O. box 8982 · 1006 JD Amsterdam
The Netherlands
Phone: +31 (0)20 - 553 91 11
info@atradius.com
www.atradius.com

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