East German mechanical engineering companies are struggling with challenges
East German mechanical engineering companies are in crisis mode: four out of ten companies rate the current economic situation as negative.
Economic development in East German mechanical engineering continues to lose momentum. In the third quarter of 2023, important economic indicators such as capacity utilization and the order backlog fell again compared to the previous quarter. This also affects the assessment of the current business situation: 62 percent of companies, noticeably fewer than recently, rated their overall situation as positive (mid-year: 68 percent - 1st quarter of 2023: 78 percent).
The diverse political and economic risk factors are also reflected in cautious business expectations and personnel planning. This was the result of a survey by VDMA East among the 350 members in Berlin, Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia. “We have been observing a gradual downward trend since the beginning of this year. Companies' order backlog is melting, and at the same time customers are investing less in new machines and products. This is increasingly putting the industry in trouble”, says Oliver Köhn, Managing Director of VDMA East.
In the third quarter of 2023, around half of East German mechanical engineers rated their economic situation as “good” (54 percent). Another 8 percent rated this as “very good”. In contrast, almost four out of ten companies assessed their own situation negatively (38 percent) - three out of ten companies said the same in the previous quarter (32 percent).
The industry average for order books is currently full for almost six months until the end of March 2024. However, there are significant differences within the industry. Companies can plan between one month and two years. In addition, 40 percent of companies recorded a decrease in orders in the third quarter of 2023 compared to the previous quarter - 18 percent of companies saw an increase in orders.
Jobs at risk?
The difficult order situation is reflected in capacity utilization. In the third quarter of 2023, companies utilized their existing capacities to an average of 83 percent - this value is 2 percentage points lower than in the previous quarter and, for the second time in a row, below the long-term national average value of around 86 percent.
“In recent months, the drastic material bottlenecks have eased and companies are increasingly reducing the backlog of orders. Uncertain economic conditions and the clouded business climate among mechanical engineering customers are now bringing previously repressed problems to the surface. This also includes liquidity and financial issues”, explains Köhn.
East German mechanical engineering companies are rather cautious about the coming months. 61 percent of companies expect their business opportunities to remain unchanged by the end of 2023. Around one in five companies (22 percent) expect the business prospects to worsen compared to before. 17 percent of companies see positive developments. The latest economic developments have caused a severe blow to personnel planning. 53 percent of companies want to maintain their current number of employees until March 2024. However, almost a quarter of companies are planning to cut jobs - twice as many as in the previous quarter.
“So far, companies have held on to their workforces or even increased them despite the various challenges, also due to the skills gap. I therefore view the change in course with great concern”, says state association manager Köhn. “The economic slowdown has arrived in East German mechanical and plant engineering. Weak domestic and foreign demand, cost increases, ever new geopolitical risks and uncertain domestic political conditions have a negative impact on the situation and mood”, summarizes the regional association managing director. It is therefore all the more important that federal policy improves the location conditions in Germany and thus strengthens the international competitiveness of the industry.