UniCredit Bank Austria industry report:
Austrian mechanical engineering sector expands growth advantage
- Mechanical engineering turnover up 10% to EUR 33.7 billion in 2022; employment up 4.9%
- Mechanical engineering economy slowing in 2023 but no reason to fear sharper decline
- Decline in demand from construction industry being offset by demand from industrial sector
- Positive outlook: Competitive strength secures sector's long-term growth advantage and further export surpluses, of around EUR 5.8 billion in 2022
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, the sector consolidated its growth advantage in 2022. "We expect the mechanical engineering sector to lose a little momentum in 2023. The economic uncertainties, high energy prices and renewed increases in financing costs are suppressing the investment appetite of mechanical engineering customers. However, the risk of a sharper decline in the sector's economy is currently low, as mechanical engineering forms continue to report high volumes of orders on hand", says UniCredit Bank Austria Economist Günter Wolf.
Mechanical engineering consolidates growth advantage in 2022
In 2022, mechanical engineering production rose by 4.9% and sales in the sector were up by 10%, reaching a record value of EUR 33.7 billion. This has further increased the growth advantage over other industries and by comparison against the sector for Europe as a whole. Since 2008, production in the sector has increased by an average of 2.6% per year, while the EU as a whole has on average only increased by 0.1%. Measured by the increase in international sales of 3.1% per year, growth during the period was generated primarily by exports.
At the same time, the number of jobs in the mechanical engineering sector grew by 4.9%, or 4300 jobs, in 2022, outpacing most other industrial sectors. Employment in the industrial sector increased by 2.2% overall. The strong employment growth in the previous year confirms the exceptional position of the mechanical engineering sector, which is not only one of Austria's fastest-growing industrial sectors but also makes an above-average contribution to job creation over the long term. Employment has risen by 22% since 2008, compared to 6% in the industrial sector as a whole. With 91,000 employees and a 14% share of industrial employment, the sector is also the largest industrial employer in Austria.
Mechanical engineering economy slowing in 2023
Towards the end of 2022, incoming orders in the mechanical engineering sector fell sharply, signalling an economic slowdown in the first few months of 2023. In the key European mechanical engineering markets, corporate investments continue to suffer as a result of economic uncertainties, which are exacerbated by the high energy prices and renewed increases in financing costs.
A sharper decline in the sector's economy is not anticipated; in the economic survey in January 2023, mechanical engineering firms continued to report high volumes of orders on hand and 92% capacity utilisation — the highest figure seen since 2007. What this means is that accumulated orders are still only being processed with a delay, due to the supply bottlenecks being experienced with primary products. Although the production challenges due to material shortages have eased, the data from January's economic survey indicates that they are still hindering some 45% of businesses. Labour shortages also became more pronounced at the beginning of the year.
From the second half of 2023, the demand for capital goods is likely to regain momentum in the major mechanical engineering sales markets. Assuming that the economic uncertainties being experienced by businesses diminish and their appetite for investment is stimulated once more, industry-adjacent mechanical engineering firms will also increasingly benefit from EU subsidy programmes. By contrast, the economic outlook for the construction-related areas of the mechanical engineering sector is set to deteriorate over the course of the year. These areas account for around one third of the sector's turnover and in 2021 and 2022 generated above-average demand for air conditioning units, lifts and other construction machinery — driven by the dynamic construction sector.
Technological leadership as basis for strong performance of mechanical engineering sector
Austria's mechanical engineering sector is among the most research focused in Europe, with R&D expenditure accounting for 4.7% of sales. In addition, an above-average number of patents are filed by mechanical engineering firms. Ultimately, R&D quotas and patent applications are only part of a business's innovative strength and it takes a variety of activities to bring an invention to market. Austria's mechanical engineering firms have held the top spot in the European innovation surveys for a number of years. In the most recent survey period covering 2018 to 2020, 86% of domestic mechanical engineering businesses were recognised as actively innovating; this is more than in all other major mechanical engineering countries in the EU (the figure was 84% in Germany, for instance, and 73% in Italy).
The double-digit global market shares at detailed product level attest to the high level of specialisation of some Austrian mechanical engineering companies. In 2021, for example, Austria exported mobile cranes to the value of EUR 500 million, which is 27% of all global imports for this goods category. With a value of around EUR 200 million, exports of chairlifts, cable cars and gondolas accounted for an impressive 82% of global imports.
Competitive sector with a positive outlook
Innovative strength is essential in order to maintain the price competitiveness of mechanical engineering firms. For example, payroll costs per employee in Austria's mechanical engineering sector are 22% higher than the EU average. Overall, Austrian mechanical engineering firms are able to offset the cost disadvantages very well, as proven by their export successes and sector growth that outstrips the rest of Europe. The sector safeguards itself against competitors with pure cost and price advantages and can largely offset market share losses for standard products. Austrian machinery has been creating increasing trade surplus volumes since as far back as the early 1990s; segments with relatively high product values have been a major contributory factor here. In 2022, approximately half of the export surplus of EUR 5.8 billion was generated by machinery for wood and stone processing and machinery for the plastics and semiconductor industry.
Although Austria's mechanical engineering sector is securing its market shares in high-wage countries and is set to continue outperforming mechanical engineering at a European level, over the long term the sector will not be able to sustain the high production growth of the last three decades, which averaged 5% per year. This is due to structural changes in relation to key customers, such as the automotive and paper industries, and the increasing competitive pressure from outside Europe.
The decarbonisation of products and production processes across all industries has long been a pressing issue, and it is one that the mechanical engineering sector is set to benefit from in particular given that the conversion work usually involves the modernisation of machinery. "The demand for environmental and energy technology will accelerate significantly over the next few years. The proportion of environmental technology manufacturers represented in Austria's mechanical engineering production has gradually increased to 18% over the last few years", concludes Wolf.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954
Email: guenter.wolf@unicreditgroup.at