Expanded mini-growth recorded in mechanical engineering during the first half of the year
The ongoing trade dispute between Germany and the US, as marked by the recently signed EU-US trade deal, is causing significant disruptions for machine and plant manufacturers in Germany and the broader Eurozone. The agreement imposes a 15% tariff on many EU exports to the US, including machines and automotive products, which are critical sectors for Germany's export-driven economy.
Key Impacts
- Increased tariffs (15%) on machinery and automotive exports to the US: The tariff increase raises the cost of German goods in the US market, dampening demand for machinery and plant manufacturing orders.
- German industry warnings of ‘immense negative impact’: Industry leaders have voiced concerns that even the reduced tariffs will have severe adverse effects on export orders, growth, and jobs in Germany and the broader Eurozone manufacturing sector.
- Supply chain disruptions and rising prices: Businesses in Germany and the Eurozone face higher input costs and changes in supply chains, contributing to uncertainty and reduced order volumes for machine and plant manufacturers.
- Relative impact on Germany less severe than on some other countries but still concerning: Analysis suggests Germany's GDP impact from tariffs is relatively small (-0.18%) compared to Mexico and Canada, who are more heavily hit, but the negative effects on specific manufacturing sectors and export orders remain.
- Small and medium-sized German enterprises (SMEs) are particularly wary: SMEs expect competitive disadvantages and planning difficulties in the US market, which could curtail machine and plant orders.
Despite avoiding a harsher tariff conflict, the burden of a 15% tariff persists, and uncertainties about US trade policy reliability under the current administration fuel continued concern in German and Eurozone manufacturing sectors.
The industry association VDMA, based in Frankfurt, Germany, has attributed the declines in the second quarter and June to the ongoing trade dispute with the US. While no specific event or factor is mentioned, the declines are thought to be driven by increased costs, supply chain uncertainty, and market access challenges.
On a positive note, the Eurozone is contributing to the demand for machine and plant manufacturers' products in Germany. Orders from the Eurozone increased by 19% compared to the same period last year in the second quarter. In contrast, orders from outside the Eurozone fell by 13% compared to the previous year in June.
The growth in the second quarter was solely due to rising demand from Euro countries, while the growth in real order values in the first half of the year, despite the decline in the second quarter, is attributed to a strong start.
In summary, the trade dispute and resulting tariffs have led to a notable reduction and disruption in orders for machine and plant manufacturers in Eurozone countries, especially Germany, driven by increased costs, supply chain uncertainty, and market access challenges.
- The increased tariffs in the US-EU trade deal, specifically the 15% levy on machinery and automotive exports, is posing a challenge to the finance sector as it raises the cost of goods for German businesses, potentially influencing creditworthiness and profitability.
- Given the substantial impact of the trade dispute on the manufacturing industry, there's a growing concern that the financial health of small and medium-sized businesses in Germany may be affected, potentially leading to a ripple effect on the broader business sector.
