An end to over-regulation and the far too high cost burden

Heavy seas and no calmer waters in sight: The mechanical and plant engineering industry in Germany expects a decline in production in the coming year as well, and for the first time in many years, the industry is threatened with job cuts - albeit slightly. In order to strengthen Germany and Europe as a business location, the VDMA is therefore calling for a significant turnaround in politics. "We are experiencing a world that is characterized by uncertainty: due to wars, trade policy trench warfare and election successes of extremist parties and candidates with their slogans that want to destabilize or even destroy our free market economy basic order," said VDMA President Bertram Kawlath at the association's annual press conference in Frankfurt.

"All the more reason why we finally need a clear and reliable economic policy that gives companies confidence and freedom and gives them the flexibility to successfully compete internationally. An end to over-regulation, an end to narrow technological requirements and also an end to the far too high cost burden in Germany," he demanded.

Production decline of 7 percent in the first ten months

Production in mechanical and plant engineering fell by 6.8 percent in the first ten months, according to preliminary figures. "For 2024 as a whole, we continue to expect a real decline in production of 8 percent compared to the previous year," said the VDMA President. In the coming year, falling interest rates are likely to benefit not only consumption, but also the global willingness to invest and initiate an economic recovery. But a brilliant upswing in the global economy is not to be expected. "Central negative factors such as wars and protectionism as well as structural breaks will remain with us. We must therefore continue to expect a lot of headwinds and therefore confirm our forecast that mechanical and plant engineering will record a real production decline of 2 percent in 2025," said Kawlath.

Small and medium-sized enterprises disproportionately affected by bureaucracy

In particular, the VDMA President called on the future federal government not to further weaken industrial SMEs, but to give urgently needed freedom. "Above all, the federal government must reduce bureaucracy and provide cost relief," he demanded. This means:

• Relief from reporting obligations, especially for small and medium-sized enterprises, which are disproportionately affected by this. Examples are the Supply Chain Act and many sustainability reports.
• A further acceleration of planning and approval procedures, also at the municipal and state level.
• Bring the tax burden for companies from the current average of just under 30 percent to 25 percent – which would still be above the OECD average of 23 percent.
• Make degressive depreciation the rule.
• Enable losses to be offset against profits in a timely, indefinite and uncapped manner.

Labour market urgently needs to be made more flexible

It is equally important to make the labour market, which is now far too rigid, more flexible again and to adapt it to the needs of industrial SMEs, Kawlath emphasised. The ongoing recession is also leaving its mark on mechanical and plant engineering, which is still the largest industrial employer in the country with a good 1 million employees. According to a recent survey of a good 500 member companies, 61 percent of respondents expect job cuts in the next 12 months and only 20 percent expect job growth. "Large companies in particular are pessimistic," said the VDMA President. Only in the junior sector are there still more companies that want to create jobs than those that are planning to cut jobs. "The bottom line is that we expect a slight reduction in jobs next year," Kawlath summed up. Therefore, far-reaching reforms are now also needed quickly on the labour market. These include:

• Limit social security to the original tasks - away from non-insurance benefits, longer weekly and lifetime working hours and make the Working Hours Act more flexible,
• stimulate employment as a whole, facilitate employment at retirement age,
• fully exploiting the domestic workforce potential through education and training,
• targeted, qualification-oriented immigration of skilled workers with the help of temporary employment agencies

Strengthening the EU single market with an ambitious initiative

However, the mechanical and plant engineering industry expects a political turnaround not only from the German government, but also from the new EU Commission. "Much of what burdens our companies comes from Brussels - partly brought in by a German government. It seems that the EU now wants to change course. The new Commission has taken the first step and made strengthening European industry its top priority. But now we also want to see results," demanded the VDMA President.

These include:

• A serious reduction in bureaucracy that immediately implements the announced simplification of the EU regulatory framework with concrete measures. In particular, the legislation of the previous legislature must be re-examined.
• Securing access to markets in like-minded regions that Europe's export-oriented industry urgently needs. The agreement with the Mercosur states, which has finally come into view, must not fail in the European Council or Parliament and further agreements must follow.
• Strengthen the EU's single market through an ambitious initiative to remove the barriers. In addition, an innovation strategy is needed to close the innovation gap with the USA and China identified in the Draghi report.

Survey: Three out of four companies want to expand US business

With the start of Donald Trump's presidency in January 2025, the mechanical and plant engineering industry must also prepare for new turbulences in the US business. "The Trump 2.0 era will certainly be more disruptive than the first term. We are prepared for more disruptions, but we believe that the U.S. market will still offer opportunities for us," Kawlath said.

He also referred to a recent VDMA survey of 560 member companies:

• According to the survey, most companies (72 percent) want to expand their US business or take up one. Three reasons in particular are decisive: market size (89 percent), growing market (72 percent), proximity to the customer (61 percent).
• Around half (51 percent) of the companies planning to intensify their business in the USA would like to do so in the form of production or assembly.
• US import tariffs of 10 to 20 percent on all imports would have a strong (49 percent) or very strong (19 percent) influence on the competitiveness of companies
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"We must expect America's confrontation with China to intensify in Donald Trump's second term. We see a fierce competition for world supremacy here, which China wants to have decided in its favor by 2049. Mechanical engineering companies in Germany and Europe must definitely prepare for this exchange of blows," Kawlath warned. However: "In order to drive forward the reindustrialization of America, the country will continue to need important capital goods from Europe and Asia. In the long term, we see an opportunity in this," he added.

China and trade: insisting on WTO compliance

With regard to China, the mechanical and plant engineering industry is facing increasingly fierce competition - also in third markets. This is also supported by government intervention, which distorts competition. "In general, Chinese companies in many sectors offer their products at incomprehensible prices. With our competition study on China from July 2024, we have proven that there are numerous subsidies for mechanical engineering companies at all levels in China. Here we clearly demand that German and European politicians do not let up and insist on compliance with WTO rules. This also means that Chinese competition violations should be countered with WTO-compliant measures," emphasized the VDMA President.

China's aggressive trade and competition policy means for German industry that a de-risking strategy will become essential for future business success. German and European mechanical engineering companies are currently reassessing risks due to current geopolitical conditions and experiences. There cannot be a blueprint for everyone, as mechanical and plant engineering is structured very differently and pursues a wide variety of business models, Kawlath explained. "However, it must be questioned to what extent a pure export model from Germany or Europe can still carry to China. In many cases, this will probably no longer be enough to ensure the future viability of the company in the Chinese market," he warned.

Climate action: Global market for emission reductions offers opportunities

Even though the government crises in Europe and the wars in Ukraine and the Middle East are currently dominating political events, "the great challenge of getting climate change under control remains urgent," the VDMA President stressed. "The climate transformation is and remains a global question of fate - and offers a great opportunity for mechanical engineering and, above all, plant engineering."

Kawlath praised the decision at the recently concluded World Climate Conference (COP29) in Baku to create the basis for a global market for emission reductions. This has the potential to make climate protection more cost-effective worldwide and to roll out technologies globally more quickly. "But the system still needs a lot of work. Therefore, our clear appeal here as well: the new federal government and the new EU Commission must simplify climate protection and the energy transition and organize them more market-wise," said the VDMA President. "However, taking advantage of global opportunities and building and maintaining value creation in Germany and Europe only works if the EU is not made the global benchmark. We need pragmatic approaches and solutions at all levels."