By Dr. Heinz-Jürgen Büchner, Managing Director of Industrials & Automotive, responsible for the metal industry and responsible for various analyzes of IKB Deutsche Industriebank
With its services, IKB Deutsche Industriebank is primarily geared towards medium-sized companies in Germany. IKB employees regularly publish articles in analog and digital media and give lectures at industry events. A forecast for the development of the foundry industry through 2025.
2020 will see the sharpest decline in global economic output since the end of WWII. While the original outlook for 2020 had expected a reasonably normal increase in world trade and global gross domestic product (GDP), the outbreak of the coronavirus pandemic in China at the beginning of the year had the opposite effect.
Although China was the first to implement a lockdown, it will also be the only country of the leading economies that will achieve a small increase in gross domestic product. China responded immediately to the outbreak of the pandemic with a strict local closure of some regions. This not only affected the automotive industry and its suppliers, but also to a considerable extent the casting and metal industries due to disruptions in the logistics chains. However, there was also a rapid recovery in the economy, so that a so-called “V-shaped curve” of GDP is expected here.
Within the EU, the slump in Italy, Spain and France is more serious than in Germany. But in Germany, too, there are only signs of a slow recovery for the time being. Reducing workers‘ hours is an important instrument for securing employment, but at the same time means a significant loss of purchasing power for private households. This has a correspondingly negative impact on private consumption. Overall, a “U-shaped course” of the economic framework conditions can be assumed in the EU, which will drag on well into the second half of 2021.
The recovery in Europe in 2021 is weaker because the UK leaves the EU with an very weak agreement. As of October 2020, the sharp rise in infection numbers has also had a negative impact on a number of countries, which is likely to dampen an economic recovery in the firth quarter of 2021. No major lockdown has yet been announced in the USA. The renewed strong increase in the number of infections ensures that, at best, a weak recovery will be possible in the firth quarter of 2021. The decisive factor will be how the new government reacts to the challenges of the pandemic and whether there will be a stronger orientation towards the most important global trading partners in the future.
Automotive industry puts pressure on casting production
In the years between 2013 and 2017, global automobile production expanded strongly; In the two following years 2018 and 2019, however, it fell again. The year 2020 is now marked by the coronavirus crisis; Production of just under 72 million light vehicles (LV) is expected at best, which means a global slump of around 20%. Europe and North America were hardest hit; in China, however, there have been positive sales reports again since April. No complete catch-up effect is seen for the year 2021, and the IKB anticipates an increase to approx. 80 million LV worldwide.
The catching-up process takes a relatively long time: the production level of 2019 will not be exceeded until 2024, that of 2018 should not be reached until 2026 at the earliest. This time, the way out of the crisis in the automotive industry is much more protracted than in the economic crisis in 1993 or the financial crisis in 2007/09. The production of medium and heavy vehicles showed a sharp drop in 2020: the global production of commercial vehicles will collapse by around a quarter. The pre-crisis level will not be reached again by 2025.
However, while Chinese car production is already recovering, the commercial vehicle segment in China is continuing to decline. Towards the end of the period under review, production in China is roughly at the level of 2016. However, there has also been a significant modernization, for example of the truck fleet in this country, in recent years. In contrast, the recovery process in Europe is taking place much faster, with the levels of 2019 possibly being reached as early as 2023. However, the decline in global car and commercial vehicle production is having a negative impact on global casting production in the current year. Slumps in the main customer industry for cast parts can only be compensated for with great difficulty by other customer industries, especially since production losses are also occurring there.
Mechanical engineering in difficult waters
The global demand for mechanical engineering products is unlikely to slowly pick up again until the course of 2021. In the current economic environment with underutilization of capacities, companies naturally hold back with investments. Sales in China will be the first to recover after the decline, but here, too, the ongoing trade conflict with the USA is dampening willingness to invest. The trade conflicts between the USA and partners including Germany and the EU, also have a negative impact on international demand for mechanical engineering products.
Mechanical engineering production is primarily burdened by the lower demand from the automotive industry and the geopolitical disputes. The collapse in exports from many other customer industries and the significant drop in capacity utilization, especially in the USA and important emerging countries, are slowing down the willingness to invest in new machines and systems, not only in Germany.
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