Eastern Germany’s Mechanical Engineering Sector Turns the Corner

Confidence returning after coronavirus crisis

According to a Mechanical Engineering Industry Association (VDMA) survey of 350 members in the new federal states, a mood of optimism can be felt in the region’s mechanical engineering sector. Almost three quarters of companies surveyed assessed their business situation positively in Q1/2021. 

Order situation stabilizes

The order situation has stabilized, with 41 percent of respondent companies reporting an increase in orders in Q1/2021, continuing the order book recovery that had already started at the end of 2020. The number of companies with a smaller order backlog than in the previous quarter also fell for the third time in succession to 21 percent. Average capacity utilization also climbed from 79 percent to 83 percent. Eastern Germany’s mechanical engineering sector was hit by the coronavirus pandemic in 2020, with companies unable to deliver orders as a result of travel and quarantine restrictions. Total year-on-year sales fell by more than 13 percent to 2014 levels of around EUR 16.4 billion.

Investment activity has picked up

Investment activity has also picked up, with more than 80 percent of companies implementing their plans or spending more on new machinery, technology, and research & development between October 2020 and March 2021. The VDMA reports that many companies in the sector used the downturn in orders to initiate future projects, develop new products and digital solutions as well as an opportunity to optimize their own internal processes. 

Companies plan to maintain or expand workforce

One in three companies surveyed expect better business by June, with 55 percent of companies expecting opportunity levels to remain constant. Around 88 percent of companies intend to retain or expand their workforce in the coming six months, with use of short-time work down to 37 percent of companies from a 51 percent share of companies at the end of last year. 

Backbone of regional economy

Drawing on a long and rich tradition, mechanical and plant engineering is considered the backbone of eastern German industry and a driving force for the regional economy. The industry has recorded significant growth rates in recent years. In 2017, the turnover of companies with 50 employees or less reached EUR 19 billion - the highest level since the structural transformation of the early 1990s. Structural change in the region’s automotive and energy sectors and global trade risks meant that this momentum could not be maintained in 2018 and 2019. The prospect of more reliable trade relations with the USA and the potential for a rapprochement between the USA and China would both have a positive effect on the business of mechanical engineering companies in the region.