European Steel Association EUROFER in its latest Economic and steel market outlook 1121-2022 Fourth quarter 2021 report, which has data up to second quarter 2021, reported that output in the mechanical engineering sector increased by 26.8% year-on-year over the second quarter of 2020, as a result of the comparison with the trough registered during the pandemic. The rebound recorded since the third quarter of 2020 has led to sharp quarter-on-quarter improvements, but activity had remained well below pre-downturn historical output levels. Positive growth has been recorded in the first quarter of 2021 of 6.1% for the first time since the second quarter of 2019, when output in mechanical engineering had started its decrease due to the continued downturn in manufacturing. Recovery in orders and output is underway, but remains fragile and exposed to risks. Among these, the general uncertainty of the economic recovery in the EU, as long as the COVID-19 threat is not over, and the ongoing global supply chain issues which are hampering industrial activity in the EU as well as in other world economies. After a sharp fall of 11.2% in 2020 following flat growth in 2019, mechanical engineering output is set to rebound by 10.7% in 2021 and, at a much more moderate pace of 2.8% in 2022. Despite the heavy toll of the pandemic in 2020, manufacturing has bounced back quickly, albeit at historically low levels of output, due to the relatively strong reliance of the mechanical engineering sector in the EU on export markets, the investment climate and global trade recovery. The latter appeared to be stronger than expected over the second half of 2020, as main export destination countries such as the US and China almost returned to a full-speed growth. However, slowdowns in industrial activity and other indicators have been showing a quick turn in the cycle since August 2021, suggesting that the momentum is probably over. The combined effect of the pandemic’s persistence and issues affecting the global supply chain, which are not expected to disappear before the first quarter of 2022, have been weakening the demand in key domestic markets in the EU. In addition, persisting trade frictions and economic uncertainty in general may continue to put the brake on investment decisions at least until the second half of 2021.