Manufacturing activity in the EU machinery sector in the first quarter of 2020 showed negative growth, which was equally impacted by industrial isolation in response to the Covid-19 outbreak, as the lack of new orders affected production. activity. As a result, the downward trend in production volumes seen in previous quarters was exacerbated, declining -6.8% year-on-year (vs. -1% in Q4 2019). Manufacturing activity in the EU machinery manufacturing fell -8.6% y /y in the first quarter of 2020 (after falling -1% in the fourth quarter), which is a continuation of the current negative trend.
The negative impact of a slowdown in investment growth in the EU, weakening international trade, a slowdown in global economic growth, protectionist policies and lingering uncertainty over Brexit continued to outweigh the positive support for output growth from orders that were still in the value chain during 2019. As a consequence, the growth in manufacturing activity continued to decline until the fourth quarter of 2019, resulting in an annual production decline, albeit very modest, of -0.3%.
The business climate in the mechanical engineering sector as a whole continued to deteriorate due to uncertainty related to trade and Brexit, as well as due to incoming orders and short-term manufacturing activity, which led to the postponement of investment decisions. This trend has been further exacerbated by the onset of the Covid-19 pandemic and its unprecedented impact on the industry. Operations have been almost completely halted since mid-March, which significantly impacted the results for the first quarter of 2020.
The lockdown measures and the cessation of industrial activity in the EU in the first quarter of 2020 will severely damage the sector with an almost unprecedented loss of production at least until the end of the second quarter (provided that lockdown measures are taken. Relaxed or removed and normal working conditions resume) …
Due to the relatively strong dependence of the EU engineering sector on export markets and the investment climate, the prospects for a post-pandemic scenario are far from bright. The combined effect of persistently low business confidence, trade friction, weakening demand in key EU domestic markets, policy uncertainty and likely weakness in the manufacturing sector as a whole will continue to hamper investment decisions. With this uncertainty, companies in most downstream sectors are likely to refrain from investing in new machinery and equipment, and instead opt for maintenance, bottlenecking and upgrades of existing equipment.
Business conditions are expected to improve only marginally in 2021 as the manufacturing sector in the EU begins to recover from the huge disruptions associated with the COVID-19 pandemic and restores normal production capacity, with the global supply chain functioning more normally. However, it will take time before the increase in the number of orders translates into production activities. On the other hand, in a post-pandemic scenario, favorable credit conditions and financial support from politicians should be favorable. Engineering production is expected to fall 13.4% in 2020 and grow 6.8% in 2021.