The German machine tool industry sees itself as well-positioned in the international competition,’ reports Franz-Xaver Bernhard, chairman of the VDW (German Machine Tool Builders’ Association) at the association’s annual press conference at Frankfurt am Main.
For decades German manufacturers have been leaders in production and export. In 2024, they ranked second after China in production and tied with China for first place in exports. Even in difficult times, they continue to invest around 3% of their turnover in research and development. A good 50 internationally renowned research institutes with numerous top experts are available at German universities for joint projects. Well-trained employees are also driving the development of the industry with their high level of commitment (to the industry). By November 2024, the industry has increased its employment to around 65,300 employees. ‘Companies can build on this foundation to cope well with fluctuations in demand. They have proven this often enough in previous periods of weakness,’ summarizes Bernhard.
Bold reforms required
Nevertheless, they need a political tailwind. The new government must set the course very quickly after the federal elections at the end of February with a convincing plan for more economic growth, demands the VDW Chairman. Reducing bureaucracy, pushing ahead with digitalisation, cutting energy costs and taxes, improving education, and renovating infrastructure, are at the top of the agenda. ‘The Supply Chain Duty of Care Act, Corporate Social Responsibility Directive (CSRD), Cyber Resilience Act, the European Deforestation Regulation, and who knows what else are overwhelming companies,’ says Bernhard, describing the situation. Depending on the company's size, it must spend between 1 and 3% of its turnover on documentation, money that is not available for investment.
Decline in production expected for 2025
The crisis in the automotive industry and the uncertainties in the two major customer markets, the USA and China, are weighing on the industry. The consumption of machine tools in the main customer market in Europe fell by 18% in 2024. The two largest markets, Germany and Italy, lost 12% and 28% respectively. China stagnated, while the USA market shrank by 7%.
In Germany, the production of machine tools in 2024, sank by 4% to around 14,8 billion euros, according to an estimation by VDW’s forecasting partner, Oxford Economics. One year earlier, the industry was able to increase its production in Germany by 9% to 15.4 billion euros. In addition, output at foreign production sites grew disproportionately at 13% to 3.8 billion euros. It thus accounted for a quarter of the global machine production of German manufacturers.
Exports sank by 5% by October 2025. Within the triad, Europe declined sharply by 16%. America, on the other hand, clearly positioned itself as a driving force with an increase of 17%. The USA overtook China after a long time, as the most important sales market growing by a fifth. Exports to China, the second largest customer, fell by 12%. India has now positioned itself as the sixth-largest sales market. Exports rose by a whopping 36%. Due to a positive export business with South Korea, Asia as a region remained almost at the level of the previous year.
In general, the economic environment is expected to improve slightly in 2025 with falling interest rates, a normalization of inflation, and a revival of private consumption. Incoming orders, an early indicator for future development, fell significantly last year, by 22% until November. However, there are signs of a bottoming out at the current margin. The domestic market lost a tenth of its value, while foreign markets lost 27%, almost three times as much. The decline is spread across the entire triad.
Even if demand for machine tools stabilizes and the general conditions improve somewhat, production will decline significantly. The VDW expects a drop of 10% to 13.3 billion euros.
Diversification of markets and customer sectors offers potential
Around half of German exports go to neighbouring European countries. With 450 million consumers with purchasing power in the EU alone and an incipient recovery in industrial investment, Europe remains an interesting and attractive sales market. German manufacturers are well established there, enjoy a very good reputation, and are close to their customers. ’This potential can be exploited even more in the future,’ recommends the VDW Chairman.
The EU Commission wants to support the development of competitive industries, for example in the digital sector. The focus is on developing a circular and crisis-proof economy that centres around research and innovation. Impulses for production are stimulated by investments in modernization and replacement requirements.
European investment activity is broadly diversified. The aviation and defence industries are investing particularly dynamically in the UK, France, and Germany. Investments in the expansion of solar energy, hydrogen, and battery production are focused on Spain, Italy, and Portugal. Wind energy dominates in Scandinavia, the UK, and the Netherlands. Further tax credits for investments in industry are expected in Italy. Demand should therefore somewhat pick up again this year.
The shortage of skilled workers and the necessary progress in productivity are driving investment in mechanical engineering. Eastern Europe in particular is currently benefiting from the expansion of electromobility in the automotive and supplier industry. International OEMs are building up capacities in Poland, Hungary, Romania, and Slovakia. Eastern Europe is especially attractive as an industrial location due to the availability of labour and is therefore increasingly in need of production technology.
USA and China remain important markets
The USA is the largest customer with a share of around one-fifth. Exports have risen by over 30% in the past two years. With lower energy prices and taxes, less bureaucracy, and major spending programs such as the Inflation Reduction and Chips Act, they are attracting investment into the country. This will intensify under the new Trump administration with America first. German manufacturers can benefit because they are broadly positioned and offer technologies that are not produced locally but are urgently needed for reindustrialization. Several German manufacturers are already producing in the USA, which would not be affected by the threatened tariffs.
The current weakness in demand in China, the second largest market with a 16% share of German exports, is characterized by overcapacity in industry, deflation, restraint in consumption, and falling investment in traditional industries. In contrast, the focus today is more on electromobility, wind power, and solar energy. The Chinese government has launched the Large Scale Equipment Renewal Plan. Industrial equipment is to be renewed with favourable loans and subsidies. This also includes the replacement of machine tools that are more than ten years old. Together with measures to support consumption, this could provide initial impetus in China again this year. The country is the largest foreign production location for German manufacturers. ‘In order to survive, however, German manufacturers must consistently secure and further expand their technological lead through innovation,’ says VDW Chairman Bernhard. A trade war between the USA and China could cause major upheaval, which would affect the entire global economy. In principle, stronger protectionism with generally higher import duties would also affect European and German industry and thus our customers, the VDW Chairman worried.
Markets with potential
India has long been seen as a market with great future potential.
German machine tool exports have grown very strongly by over 60% in the past two years. In particular, the largest industry sector, metal production and processing, is planning high expansion investments until 2030. The automotive industry is also expanding. India is now the fourth-largest manufacturing country in the world. The mechanical engineering also plays an important role as a customer. Locally, the main food and packaging machinery, construction and mining machinery, power plant technology, and plastics machinery. The energy industry here also relies on renewable energies.
The smaller markets of Southeast Asia, Thailand, Malaysia, Vietnam, and Indonesia, also offer potential. Although they only account for around 1.5% of German exports, increased efforts are worthwhile, since international corporations are active in these countries, also as an alternative location to China. This increases the demand for higher quality, state-of-the-art production technology. However, competition with Japan, China, and other Asian manufacturers in their home region is fierce.
New customers need new solutions
The transformation process in the automotive industry from combustion engines to electric drives with its current very bumpy development is motivating machine tool manufacturers to tap into other customer sectors. ‘The transformation process will take place without structural changes at suppliers and equipment suppliers,’ says Bernhard. Accordingly, the sector has already reduced the proportion of its deliveries to the automotive and supplier industries. In the VDW customer structure survey for 2023, 27.2% of production went to the automotive industry instead of 31.1% two years earlier. Mechanical engineering is now the most important customer with 30.1%.
Other sectors are also gaining in importance and new business areas are developing. The aviation industry is investing in more fuel-efficient fleets. Medical technology is playing an increasingly important role in an aging society. The energy transition is leading to investments in wind power, solar energy, hydrogen technology, carbon capture and storage, and heat pumps. Expenditure on defence and armaments will increase in the countries as a result of Russia's war in Ukraine. And the sharp increase in digitalization and networking is strengthening the electronics industry, for example with the production of cutting-edge chips or the expansion of server farms. Diversification into new customer groups requires an adaptation of the range of solutions. This is where companies can play to their strengths. The drivers of modern production technology are automation and digitalization, reinforced by the shortage of labour, but also sustainability. ‘There are still major challenges for German and European industry. Our companies will do their homework. I have no worries about that,’ concludes Bernhard.
Source: www.vdw.de
