Early-hour German engineers breathe in the morning air
The German machine and plant manufacturing industry is experiencing a mixed bag of results in the first five months of the year, with some positive developments tempered by ongoing trade disputes, particularly between the EU and the US.
According to the VDMA, the industry association, the order situation has shown an improvement, with a total order surplus of 3% for the period. This development, reported on Wednesday, has sparked a slight optimism for the second half of the year, as stated by VDMA chief economist Johannes Gernandt. However, he emphasized that uncertainty remains high due to ongoing trade negotiations worldwide and the potential impact of tariffs.
One of the significant challenges faced by the industry has been the trade dispute initiated by the USA in April, which had a negative impact on the sector. The threat of increased tariffs on EU imports, including a potential 50% tariff on certain products, has been hanging over the industry, causing unrest.
However, as of early July 2025, there is a glimmer of hope. The EU and US are considering a "skeleton" trade deal that would maintain a baseline 10% tariff on most EU exports to the US, with some exceptions for sensitive sectors. While this is a compromise, it is seen as a step towards avoiding more damaging higher tariffs.
Germany, as Europe's largest economy and a major exporter of machinery and industrial equipment to the US, faces significant risks from sustained tariffs. The 10% tariff on industrial products increases the costs for German manufacturers exporting to the US, making their products less competitive and potentially reducing sales volumes.
Moreover, the industry is particularly sensitive to supply chain and tariff disruptions because many German machine and plant manufacturers operate integrated transatlantic production and supply lines. The uncertainty over tariffs hampers investment decisions and long-term planning.
While Germany supports the 10% tariff deal as a compromise, the industry is pushing for more targeted tariff relief, especially for sectors with complex cross-border manufacturing processes like automotive components and industrial machinery.
In May, the industry saw a significant growth, with overall order inflows increasing by 9% and foreign demand for German machine and plant products increasing by 12%. Domestic business growth was also positive, with a 2% increase in May, compared to the previous year's weak May.
However, the production forecast for the year 2025 is a real decrease of 2%. This underscores the need for a swift resolution to the trade disputes to provide stability and certainty for the industry.
The situation remains fluid with further negotiations expected to address sector-specific tariff reliefs in the coming weeks. The hope is that a full resolution will be reached soon, providing a much-needed boost to the German machine and plant manufacturing industry.
- The positivity in the German machine and plant manufacturing industry, despite ongoing trade disputes, is fueled by a 3% total order surplus reported by VDMA, as stated by their chief economist, Johannes Gernandt.
- Global trade negotiations and potential tariff impacts continue to cause uncertainty for the German industry, despite a potential "skeleton" trade deal between the EU and US, which maintains a 10% tariff on most EU exports to the US.
- With the production forecast for 2025 showing a decrease of 2%, the industry urges for a swift resolution to trade disputes, especially for sectors like automotive components and industrial machinery, to provide stability and ensure growth, given the industry's positive growth in May with a 9% increase in overall order inflows and a 12% increase in foreign demand.
