Market Monitor - Focus on machinery - Germany

Market Monitor

  • Duitsland
  • Machines/Engineering

In 2015 production is expected to increase at around 2%, the same level as in 2014.

  • Lower margins due to increasing competition
  • Machinery insolvencies expected to decrease 5% in 2015
  • The paper/print and solar-related subsectors still face problems


The German machinery/mechanical engineering sector performed quite well in 2014, with real turnover increasing 1.9% and nominal production growing 2.2% year-on-year, according to the German engineering association VDMA. Exports increased 1.7%, while domestic sales rose 3.8%. Capacity utilization was 84.7%. In the period of March-May 2015 incoming orders decreased 3% in the domestic market, while orders from foreign markets increased 1%. In 2015 production is expected to increase at around 2%, the same level as in 2014.

The Ukraine crisis continued to impact business with Russia, with machinery exports decreasing 28% year-on-year in Q1 of 2015. While in 2013 Russia was the 4th largest export market for German machines it has slipped back to 10th. Russian buyers ´ financing is the main issue in the machinery businesses with Russia: in many cases even already ordered and paid down machines are not delivered, as Russian customers lack the financial means to pay the remaining amount. That said, most machinery exporters with a strong focus on Russia were able to at least partly compensate declining revenues by increasing exports to the EU, the US and Asia, thereby limiting their profit losses. However, some smaller players dependent on trade with Russia, which already had financial difficulties ahead of the Ukraine crisis, are now facing more troubles.

German machinery businesses generally have little in the way of debt and are therefore not excessively reliant on bank finance. Most business financials are healthy, however a general decrease in profit margins has been observed over the last 12 months. This is mainly due to increasing competition, especially from China. In the global market Chinese machinery builders are increasingly capable of producing high quality machines, forcing German businesses to compromise on price. Additionally the sharply decreased business with Russia had its effect on margins, as affected machinery companies had to run-down their business there and to start investing in other markets in order to compensate for lost business.

Compared to other German industries, the machinery/engineering sector’s payment behaviour and default/insolvency rate is still good. The amount of non-payment notifications is expected to remain low, and insolvencies are expected to decrease further in 2015, by about 5% year-on-year.

Our underwriting approach remains generally relaxed and our exposure to this sector is increasing. We still need to see financial data such as balance sheets, quarterly reports, forecasts and bank commitments when assessing the creditworthiness of buyers in the sector and will sometimes recommend that our clients impose retention of title or other forms of security.

That said, caution is advised with machinery businesses involved in the troubled solar-related and paper/print subsectors. Problems in the paper/print segment are structural, as society in general becomes more and more ‘digital’. This shift has resulted in shrinking profit margins, and many companies are still restructuring to adjust their production to customer needs. Another segment with difficulties remains textile machinery, but this subsector represents only a minor share of the German machinery industry.

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