Mechanical Engineer Output in Europe to Recover by 10% in 2021
Mechanical Engineering EDJN

Mechanical Engineer Output in Europe to Recover by 10% in 2021

According to the Economic and Steel Market Outlook 2021-2022/Q3 2021 Report from the Economic Committee of the European Steel

According to the Economic and Steel Market Outlook 2021-2022/Q3 2021 Report from the Economic Committee of the European Steel Association EUROFER, EU mechanical engineering output has fallen by 12.1% in 2020, that is for the second consecutive year, further to minus 0.8% in 2019, and is set to rebound later by 10.6% in 2021 and +3.6% in 2022.

Output in mechanical engineering had been falling since the second quarter of 2019, in connection with the continued downturn in manufacturing. In line with expectations, production activity in the EU mechanical engineering sector registered record recession in the second quarter of 2020, which was equally affected by the industrial lockdown in response to the COVID-19 outbreak as the lack of new orders took its toll on production activity. As a result, the downward trend in output observed in previous quarters was considerably exacerbated, with a fall by 22.2% year-on-year in the second quarter, during the most severe COVID-19-related lockdowns. Over the third quarter, further to the removal of lockdown measures and the restart in industrial production, output in the EU mechanical engineering industry in the third quarter of 2020 rebounded significantly quarter-on-quarter but still fell year-on-year by 9.7%, as a continuation of the existing negative trend and reflecting low activity levels. The rebound seen over the third quarter has led to sharp quarter-on-quarter improvement, but activity remains well below historical output levels seen before the downturn that started in the second quarter of 2019. In addition, the second wave of the pandemic has resulted in continued uncertainty and hampered the industrial recovery as well as the global manufacturing cycle. In the fourth quarter, this trend has continued, resulting in another fall year-on-year (-5.4%), albeit lower than in the third quarter, and the continued quarter-on-quarter rebounds have finally led to year-on-year growth in the first quarter of 2021 (+3.8%), for the first time since the second quarter of 2019. Recovery in orders and output is ongoing quarter but remains fragile and exposed to the general uncertainty of the economic recovery in the EU, as long as the COVID-19 threat is not over. Output growth is not set to gain speed before the second half of 2021, provided that the negative effects of the pandemic are diminished and no other external shock will materialise. Over the entire year 2020, mechanical engineering has experienced a drop in output (-12.1%), following that of 2019 (-0.8%).

The pandemic took a heavy toll on the mechanical engineering sector in 2020. Due to the relatively strong reliance of the mechanical engineering sector in the EU on export markets and the investment climate, prospects for the post-pandemic scenario will depend on the intensity and stability of the global trade recovery, which appears to be stronger than expected as main export destination countries such as the US and China are experiencing a stronger than expected economic recovery and trade flows are also improving at a rather fast pace. However, due to the asymmetry in economic recoveries at the global level, with the EU lagging behind in comparison to other major world economic regions, the above scenario remains exposed to risks. The combined effect of persistently low business confidence, trade friction, weakened demand in key domestic markets in the EU, and policy uncertainty in general may continue to put the brake on investment decisions at least until the second half of 2021.

By contrast, the manufacturing sector has also rebounded quickly in the EU and its recovery is expected to continue, albeit at historically low levels of output. During the 2019 downturn and throughout 2020, companies in most downstream sectors refrained from investment in new machinery and equipment and have instead favoured maintenance and the upgrading of existing machinery. Confidence in the sector has been improving constantly since the third quarter of 2020, together with general conditions of the manufacturing sector, which is likely to benefit new business investment, which will continue to be supported by interest rates at record lows. There are still, however, disruptive influences linked to the COVID-19 pandemic affecting the global supply chain (high transportation costs, high oil prices, shortages of components etc) which still prevent it from functioning normally, but this is expected to ease substantially and then disappear by the third quarter of 2021.

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