UniCredit Bank Austria industry report on the mechanical engineering sector:
Mechanical engineering industry regaining momentum in 2021
- Production growth of around 7% expected in Austrian mechanical engineering sector in 2021, outstripping industry average
- Recovery in 2021 to offset production slump of around 15% suffered in 2020 only partially; sector unlikely to return to pre-crisis performance levels until 2022
- Decline in employment rate within mechanical engineering low at just 0.8% despite considerable production decreases in 2020
- Innovation, competitive ability and growth above average in Austrian mechanical engineering sector
- Sector growth set to outpace European competitors due to competitive ability
By international comparison, Austria's mechanical engineering sector is highly competitive and posting strong growth. As the latest UniCredit Bank Austria industry report on the mechanical engineering sector shows, it was only in 2020 that the sector began to struggle a little. "We expect considerable upwards momentum in the mechanical engineering sector this year, with the declines experienced in 2020 being offset by 2022 at the latest. In addition, the sector's competitive strength will see it outpace the growth of its European competitors once again in the future", predicts UniCredit Bank Austria Economist Günter Wolf.
Mechanical engineering continued to shore up industrial employment in 2020
There were already signs of a deterioration in the mechanical engineering economy at the end of 2019. For 2019 as a whole, this sector of Austrian industry did still record production growth of 4% and sales growth of around 7%, to EUR 25.9 billion. In 2020, however, the mechanical engineering sector saw production output slump by around 15%; this figure is greater than in the domestic industrial sector as a whole, which is likely to have ended the 2020 year of crisis with its decline below the 10% mark.
Despite the more substantial decline in production, the number of jobs in the mechanical engineering sector fell by just 0.8% on average across 2020, compared with 1.5% in the industrial sector as a whole. The mechanical engineering sector's unemployment rate for 2020, at 2.9%, was likewise below the sector average of 4.9%. The relatively stable employment situation during the 2020 year of crisis can, on the one hand, be attributed to the application of short-time working programmes. On the other hand, however, this situation confirms the exceptional position of the mechanical engineering sector, which is among the fastest-growing industrial sectors in Austria and, over the long term, creates a disproportionate volume of jobs. From 2008 to 2020, the number of jobs increased by 16%, compared with around 3% in the industrial sector as a whole. Mechanical engineering has long been the largest industrial employer in Austria and remained so in 2020, with an average of 86,000 employees and a 14% share of industrial employment.
Recovery in sector economy in 2021 will only partially offset slump in 2020
In December 2020, the majority of mechanical engineering companies were optimistic about the prospect of a return to production growth over the coming months as a whole. The last time the companies expressed similarly optimistic views was in the spring of 2019. That said, demand for equipment investment will not fully recover from the crisis until 2022, and in some EU countries not until 2023.
In 2021, the willingness of companies to invest will still be dampened by uncertainties about developments with the pandemic, the marked financial losses resulting from the crisis and underutilised production capacity. However, the mechanical engineering economy will be propelled by the planned public investment and by support packages at both EU and national level, as well as by the continued existence of favourable financing conditions.
In 2021, the mechanical engineering sector in Austria can expect to achieve production growth of an estimated 7%. The pace of growth in the sector is therefore outstripping the industry average and 2019 production levels are likely to be achieved again in 2022.
Stronger growth impetus can be expected from Germany, which accounts for 26% of Austria's machinery exports, as well as from the USA and China, which together make up a further 14% of machinery exports.
Technological leadership as basis for strong performance of mechanical engineering sector
Austria's mechanical engineering sector is among the most research focused in Europe. At 4.7% of sales, its R&D expenditure is one of the highest in the EU. A further indicator of the sector's technological leadership is the relatively high number of patents filed by Austrian mechanical engineering companies in the international patent system. Machine tools and paper machinery are particularly prevalent areas in this regard.
The EU innovation surveys confirm the sector's strength with innovation and also its ability to develop inventions to market maturity. Domestic mechanical engineering has for years enjoyed a leading position within these surveys, with the number of companies producing innovations increasing almost continuously; by 2018, 88% of all mechanical engineering companies were represented (the average for the industrial sector as a whole 65%).
Competitive sector with a positive outlook
The domestic mechanical engineering sector demonstrates its competitive edge over its international sector companions: Since 2008, production in the sector has increased by an average of 2.7% per year, while the EU as a whole has on average declined by 0.3% over the same period. The increases were generated almost exclusively in exports.
Austrian machinery has been creating increasing trade surplus volumes since as far back as the early 1990s, mainly in segments with relatively high product values. In 2019, almost half of the export surplus of EUR 5.8 billion was generated by the trade in machinery for wood and stone processing and machinery for the plastics and semiconductor industry.
Austria's companies are able to successfully defend their position in an international competitive environment thanks to excellent product quality and individually manufactured custom machinery. The sector is therefore also able to safeguard itself against competitors with pure cost and price advantages and can largely offset market share losses for standard products. It is notable that Austrian machinery has generated considerable export surpluses that have been increasing over the course of many years in all major overseas markets, including in China (as much as EUR 440 million in 2019).
The competitive strength of the domestic mechanical engineering sector should help it to continue outpacing the growth of EU competitors in the future. That said, future production growth is expected to remain below the 5% average seen over the last two decades.
The trend towards networked production processes, digitalisation and automation constitute key growth opportunities for the mechanical engineering sector. In addition, tackling the climate crisis will result in significantly increased demand for environmental and energy technology over the next few years (over the last ten years, the domestic mechanical engineering sector has generated an average of 18% of its sales with environmental technology).
On the flip side, there are also numerous risks to demand. These are caused by factors such as structural changes in key customer industries, such as vehicle production, and increased competitive pressure from emerging economies, especially China. In addition, the Chinese market for European mechanical engineering is set to lose growth potential.
The Fraunhofer Institute estimates that exports from the German mechanical engineering sector to China will begin to stagnate from around 2025 if China achieves the technology level defined in its "Made in China 2025" strategic plan. "Given this background, the investment agreement concluded in December 2020 between the EU and China will at least improve the prospects for European mechanical engineering operations on the Chinese market", concludes Wolf.
Enquiries
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at