Int'l Perspective: European Trend Report - Optimism Prevails

“We expect Germany’s toolmaking sector to grow by 4 percent in 2017, driven by demand from the United States and China,” says Udo Fenske, vice chairman of the German Engineering Federation’s Die and Mould Association, which also is part of the federation’s Precision Tools Association. The German Engineering Federation (VDMA) represents more than 3,200 mostly medium-sized companies in the capital goods industry, making it the largest industry association in Europe. 

Fenske is not alone in his opinion about growth this year. Manuel Oliveira, the European secretary general for both the Portuguese Association for the Mould Industry (CEFAMOL) and the International Special Tooling and Machining Association (ISTMA), is also optimistic about Portugal’s moldmaking industry in 2017. While there are no final figures available for last year, the latest figures from CEFAMOL forecast 6 percent growth in exports in 2016. 

According to Oliveira, if this forecast is confirmed, 2016 will be the best year ever for the Portuguese moldmaking industry, and shops are expecting new projects from primarily automotive clients in 2017. “The Portuguese industry will maintain this level of activity by using installed capacity in terms of engineering, product design, prototyping and moldmaking capabilities, and by broadening the chain of value, investing in new technologies, and developing partnerships with clients, suppliers and associations,” he says. 

Oliveira adds that there is a whole range of possible economic, political and social scenarios, such as Brexit and U.S. President Trump’s import taxes, that could create international instability affecting Portugal as an export-driven industry. For example, if the United States imposes import taxes on finished goods not made in the U.S. (this could also include nonfinished products such as molds) and Portugal exports 86 percent of its molds.

Also according to CEFAMOL, while exports to North America have stagnated over the last couple of years, demand from the U.S. is increasing due to its re-industrialization efforts and a decrease in local mold production, as well as a more favorable exchange rate.

German machine tool builders export 66 percent of their machines, mostly to China, and because the U.S. is the world’s second most important machine tool market, satisfying 60 percent of its demand via imports, there are concerns about how trade may be affected with the current political uncertainties. However, according to Dr. Heinz-Jürgen Prokop, chairman of the German Machine Tool Builders’ Association (VDW), the machine tool industry is, to a great extent, decoupled from general market trends. For example, look at China. Contrary to the general market trend, German machine tool builders increased their order intake by 50 percent in the first nine months of 2016 due to automotive projects and its supply industry.

Also, if President Trump wants to create 25 million jobs over 10 years, including high-paying factory positions, to return factory production to its heyday, he will depend on high-tech production technology from abroad, especially from Germany, as U.S. machine tool manufacturing has greatly decreased, Prokop says. Therefore, Prokop is not concerned that demand from the U.S. will slow in the medium term.

However, Mexico is an issue. Although the market flourished in 2015 (exports of German machine tools increased by 75 percent in 2015, decreased again by 11 percent last year) because of huge automotive projects, President Trump’s threat to pull the U.S. out of NAFTA, which includes Mexico and Canada, if he cannot negotiate more favorable terms, is of great concern to Germany and Europe.

For 2017, VDW expects 3 percent growth in production, which corresponds to the forecast from VDMA’s Precision Tools Association. While Chairman Lothar Horn agrees with Prokop that political uncertainty in some of Germany’s major export markets are expected to pose challenges, he is still optimistic for the current year.

VDMA reports that Germany’s precision tooling industry grew by 3 percent to around 9.9 billion euros in 2016 and is expected to rise another 3 percent in 2017. This growth was mainly driven by the tool, die and moldmaking sector, which outperformed the other precision tooling subsectors (cutting and clamping tools) last year with a sales growth of 5 percent. 

Similar to the cutting tools sector, where exports to the U.S., China and the United Kingdom declined compared to 2015, tool, die and moldmakers delivered only half the amount of their products to the U.K., according to VDMA. Demand from across the Atlantic decreased by 6 percent, while Mexico developed to become the fourth largest export market for Germany’s toolmakers, driven by large international automotive projects.

“The mood among Italy’s machine tool builders is equally positive for 2016, as it contributes almost 8 billion euros to the national GDP, and production increased to 5,480 million euros, recording a 5 percent upturn versus the previous year,” says Massimo Carboniero, president of Italy’s machine tool builders association (UCIMU). Carboniero also reports that, according to 2017 forecasts, production will rise by 4 percent, which is close to the record-breaking value of 6 billion euros registered in 2008.

2016 data for Spain’s machine tool and advanced manufacturing technologies sector indicate a turnover in excess of 1.5 billion euros, increasing by 1.8 percent over 2015 figures, according to Antxo López Usoz, president of Spain’s Machine Tool, Accessories, Component Parts and Tools Manufacturers’ Association. “And due to longer project maturity times, part of this turnover will materialize in 2017,” Usoz says.

Finally, the latest Eurozone Manufacturing Purchasing Managers’ Index (PMI), which is based on original survey data collected from 3,000 manufacturing companies in Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece, and published by London-based IHS Markit, a company providing information and analysis for decision-making in business and government, supports these positive forecasts. 

“Eurozone manufacturing is off to a strong start to the year, enjoying the fastest rate of expansion for almost six years in January. Rates of growth of new orders, exports and employment have all hit multi-year highs, with the depreciation of the euro playing a key role in helping drive new sales in export markets,” says Chris Williamson, chief business economist at IHS Markit.

Optimism about the year ahead has risen to the highest since the region’s debt crisis, according to Williamson, suggesting that companies are maintaining a buoyant mood despite the heightened political uncertainty caused by Brexit and looming general elections in the Netherlands, France and Germany.