The war in Ukraine will have a significant impact on mechanical and plant engineering. According to the latest VDMA flash survey, 85 percent of companies see the war as a serious or noticeable risk to their business. The VDMA is therefore lowering its production forecast for 2022 to plus 4 percent in real terms.
The war in Ukraine will have a significant impact on mechanical and plant engineering and will once again exacerbate the difficulties in supply chains that have not yet been overcome. According to the 13th VDMA flash survey among its member companies, conducted at the beginning of March, 85 per cent of the almost 550 participants see the war as a serious or noticeable risk to their business. The focus here is particularly on the indirect effects: almost 80 per cent of the machinery and plant manufacturers expect serious or noticeable consequences, for example, from a further increase in energy prices, the general uncertainty amongst customers or the devaluation of the rouble. When asked about the direct effects of the Russian aggression, 45 per cent of the companies speak of serious or noticeable effects due to the sanctions, the postponement of projects or generally lower turnover in Russia or Ukraine.
More than ever, therefore, there is a need for a quick peace agreement while preserving Ukraine's territorial integrity.Karl Haeusgen, VDMA President
"For the mechanical engineering sector, doing business with Russia is not existential, but companies will have to pay a price for the Russian war of aggression, which cannot be justified by anything," says VDMA President Karl Haeusgen. The priority for many companies now is to ensure the safety of their employees in Ukraine and also in Russia. At the same time, they must also prepare for further gaps in the supply chains. This runs through the entire production process up to delivery and commissioning. "More than ever, therefore, there is a need for a quick peace agreement while preserving Ukraine's territorial integrity. This is all the more true as both countries play a very important role in supplying the world with foodstuffs such as grain and are dependent on deliveries from German and European mechanical and plant engineering," Haeusgen emphasises.
Production up 6.4 per cent in 2021
According to revised figures from the Federal Statistical Office, production in the mechanical and plant engineering sector in Germany increased by 6.4 percent in real terms in 2021. This is almost in line with the VDMA economists' estimate. For the current year, however, the Ukraine war - in addition to other risks such as inflation, new waves of pandemics or the China-USA dispute - poses risks to further economic development that cannot be assessed. Trade disruptions and the sharp rise in energy prices will at least slow down the economic recovery. Russia ranks only ninth in the export ranking of German mechanical enineering products (Ukraine: 31st, Belarus: 53rd). But all three countries together account for an export volume of 7.0 billion euros (2021). "In all likelihood, we will have to cut back significantly on this, to the point of a virtual standstill. Our survey also shows that the indirect consequences of the war in Ukraine, i.e. the mutual sanctions, the breakdown of business relations and the fundamental changes in geopolitical and economic conditions, are even more serious," explains Haeusgen.
Weak fourth quarter of 2021 shows in the forecast
As a consequence, the VDMA economists are correcting the previous annual forecast for real production growth. "Instead of the originally expected growth of 7 per cent in real terms, we now only anticipate a production increase of 4 per cent for the current year," says the VDMA president. The decline is due on the one hand to the comparatively weak fourth quarter of 2021. As a result, the mechanical engineering sector started 2022 from a lower base, which slows down the growth rate. Added to this are the direct consequences of the war and the already noticeable uncertainty among machinery and plant manufacturers and their customers. Full order books should prove supportive. This forecast does not cover extreme scenarios such as the expansion of warlike actions to other countries, the consequences of which cannot be foreseen.
Half of the companies surveyed report a backlog of up to one month's production.Karl Haeusgen, VDMA President
Persistent bottlenecks in the supply chains
According to the survey, the predominant problem for companies in the machinery and plant engineering sector is disrupted supply chains. 32 percent of the companies see themselves confronted with serious difficulties here, 42 percent speak of noticeable obstructions. However, the very current development of the war and its consequences have probably not yet been reflected in this assessment. Consequently, the companies surveyed are pessimistic about the next three months. The majority of respondents (53 per cent) expect the difficulties in the supply chains to worsen, while another 43 per cent expect the situation to remain tense.
Relief for electronic parts not expected until the fourth quarter of 2022
Supply bottlenecks are mainly registered for electronic components (52 percent serious, 28 percent noticeable) and for metal products (10 percent serious, 44 percent noticeable). Supplies for their own production arrive at the factory significantly delayed: in the case of electronic components, 31 percent of the companies report an extended waiting time of at least six months, for another 30 percent of the companies it is three to six months late. For metal products, about one in three companies is waiting one to three months longer, another 21 percent are waiting at least three months. Subject to the consequences of the war, bottlenecks are not expected to ease for metal products in particular until the second half of the year. In the case of electronic components, two-thirds of the companies do not even expect the situation to improve until 2023. As a result, 82 percent of the companies now have production backlogs, for example unfinished end products that cannot be completed and delivered due to a lack of materials. "Half of the companies surveyed report a backlog of up to one month's production. This shows the great challenges facing medium-sized industry again this year," says VDMA President Haeusgen.
A good three quarters of the companies have learned from recent experiences and are critically reviewing their supply chains. Most of them want to ensure their supply security in the future through a broader supplier network, changed procurement principles or increased warehousing. A different geographical distribution of suppliers also plays a role in many companies. "The fact that 84 per cent of the machine-builders surveyed nevertheless expect an increase in sales this year shows their resilience and ability to adapt to all crises again and again," VDMA President Haeusgen sums up.
