In the second quarter of 2011, activity in the mechanical engineering industry in the EU increased almost 12% YoY; this is only a mild deceleration compared to the close to 16% growth in the first quarter of this year.

Increasingly, domestic demand driven by rising corporate investment in Europe has been driving growth in output. Investment in machinery and equipment has been rising since late 2010. Meanwhile, also exports continued to contribute to the improvement in activity and in order books.

First indications for the third quarter signal a continuation of rather healthy business conditions. The German mechanical engineering association VDMA reported a 14% YoY rise in orders in August, with domestic orders growing 22% and export orders 9% YoY. The German industry nearing capacity limits has boosted activity in other countries such as Austria, the Netherlands, Sweden and most Central European countries.

Business prospects for the remainder of 2011 and 2012 have remained quite positive despite high uncertainty levels impacting on industrial sentiment. Order books have continued to increase in recent months; the existing backlog will guarantee activity staying at overall satisfactory levels in the coming quarters. EU investment in machinery and equipment is projected to increase by more than 3% in 2012, coming from 4% in 2011.

The competitive position of Eurozone producers on the key markets abroad could improve if the EU remains around its current level of close to USD 1.35. This could help to soften the moderation expected for growth in global GDP and international trade. On balance, mechanical engineering output in the EU is seen rising by more than 9% this year. This implies that average growth in the 2nd half of the year will slow down to around 5% YoY.

In 2012, output in the EU mechanical engineering industry is seen keeping a rather satisfactory pace. Activity is forecast to rise further by almost 3.5%, with growth in the 1st half probably outpacing growth in the remainder of 2012, reflecting the industry nearing its capacity limits again.