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EUROFER Mechanical Engineering Forecast 2020-21

Steel News - Published on Fri, 14 Aug 2020

Image Source: Europe Mechanical Engineering
In line with expectations, production activity in the EU mechanical engineering sector registered negative growth in the first quarter of 2020, which was equally affected by the industrial lockdown in response to the Covid-19 outbreak as the lack of new orders took its toll on production activity. As a result, the downward trend in output observed in previous quarters was exacerbated, with a fall of -6.8% year-on-year (against -1% in the fourth quarter of 2019). Production activity in the EU mechanical engineering industry fell -8.6% year-on-year in the first quarter of 2020 (after a drop of -1% in the fourth quarter), as a continuation of the existing negative trend.

The negative impact of slowing capital investment growth in the EU, weaker international trade, slowing global economic growth, protectionist policies and continuing Brexit uncertainty had continued to outweigh positive support for output growth from orders that were still in the production pipe line throughout 2019. As a consequence, growth in production activity continued to decline up to the fourth quarter of 2019, resulting in an annual drop in output, albeit very modest, of -0.3%.

The business climate in the mechanical engineering sector had continued to deteriorate in general due to trade-related and Brexit uncertainty as well as on incoming orders and near-term production activity, which led to investment decisions being postponed. This trend has been further worsened by the onset of the Covid-19 pandemic and its unprecedented consequences on the industry. Activity came to almost complete shutdown from mid-March, which has significantly impacted figures for the first quarter of 2020.

The lockdown measures and the shutdown of industrial activity across the EU in the first quarter of 2020 are set to take a heavy toll on the sector, with an almost unprecedented output loss at least until the end of the second quarter (provided that lockdown measures are eased or removed and normal business conditions resume).

Due to the relatively strong reliance of the mechanical engineering sector in the EU on export markets and the investment climate, prospects for the post-pandemic scenario are far from bright. The combined effect of persistently low business confidence, trade friction, weakened demand in key domestic markets in the EU, policy uncertainty and the likely weakness of the manufacturing sector in general will continue to put the brake on investment decisions. Amid such levels of uncertainty, companies in most downstream sectors will likely refrain from investment in new machinery and equipment and will instead favour maintenance, debottlenecking and the upgrading of existing machinery.

Business conditions are expected to improve only slightly in 2021 as the manufacturing sector in the EU begins to recover from the huge disruptions linked to the COVID-19 pandemic and will restore normal production capacity, with the global supply chain functioning more normally. However, it will take time before a rebound in orders feeds through to production activity. On the other hand, in the postpandemic scenario, easy credit conditions and financial support from policymakers should prove supportive. Mechanical engineering output is expected to fall by -13.4% in 2020, and to rebound by 6.8% in 2021.

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Posted By : Yogender Pancholi on Fri, 14 Aug 2020
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