In Depth: Machinery production growth rebounding, but challenges are ahead

The machinery market is poised to grow more than 10% in 2011, according to a new report from IMS Research, and they expect that trend to continue through 2014.

By CFE Media October 7, 2011

The machine sector was among the hardest hit by the economic downturn, and given the long-lead nature of the business – it was also one of the last to suffer. However, according to the latest report from IMS Research, worldwide production of machinery is set to eclipse its previous record, set back in 2008. IMS Research market analyst Andrew Robertson talked with CFE about how the export business has fueled some of the return to form for the sector, and what lies ahead for the U.S.

CFE Media: The rebound for machinery production from the 2009 recession has been pronounced. What’s driving that kind of growth at a time when the rest of the recovery seems to be slowing?

Robertson: Machinery production historically tends to be an industry that fluctuates greatly with troughs and peaks tending to be particularly severe.

When the downturn came, investment was put on hold and inventory allowed to run down. This meant that when recovery emerged where was a big bounce back from replacing inventory and catching up with projects that had been put on hold. The sector also benefitted from stimulus packages which were seen from governments around the world.

Although demand from Europe and America may not be spectacular, machine builders in these countries still benefitted from strong demand from Asia Pacific.

CFE: It’s no surprise to see machinery production growth in Asia, but perhaps a bit of a surprise to see Japan leading that recovery. Talk a bit about the strength of the Japanese machinery market compared to North America and Europe.

Robertson: I would be careful in talking about the strength of the Japanese recovery. It is important to remember where from where this recovery is starting. Although there was a big percentage increase in 2010, the magnitude of the decline in 2009 was such that output is still way behind where it was in 2008. It’s worth considering that in 2009 Japan’s GDP declined by 6.3% (more than Canada, US, UK, Germany, France, Italy, Greece, Portugal and Spain) before growing 4.0% in 2010 (Japan’s biggest increase since 1990).

Japan is particularly reliant on exports, and so suffered badly from the decline in trade that was seen in 2009. When the upturn came, though, Japan was benefitted strongly from exports to other Asian countries, in particular China.

CFE: There seems to be a correlation between those European countries with struggling economies and their machinery production growth. Does that look likely to continue, or can machinery production actually help prop up these struggling economies such as Portugal and Greece?

Robertson: Generally we find that machinery production typically reflects a nation’s economic performance. As mentioned before, machinery production tends to fluctuate higher and lower than GDP, but the correlation is still there. These countries aren’t particularly benefitting from strong exports to developing nations, and, of course, domestic demand is still very low, so there appears no reason why machinery output would prop up these struggling economies you mentioned.

CFE: Manufacturing has led the U.S. recovery, and machinery output clearly has been a big part of that. Has the machinery production been more for domestic consumption or for export, and do you expect that trend to continue?

Robertson: Indications are that this has been a result of increased exports, while domestic demand has remained sluggish. This is backed-up by the fact that the U.S. has seen fairly poor economic growth this year, while machinery and industrial production has remained more robust; this would point to exports playing a much bigger part in this recovery than domestic demand.

With manufacturing growth in the U.S. continuing to be weak, it looks unlikely that domestic demand for machinery will improve dramatically in the near future.

– Edited by Chris Vavra, Plant Engineering, www.plantengineering.com 


Author Bio: Since its founding in 2010, CFE Media and Technology has provided engineers in manufacturing, commercial and industrial buildings, and manufacturing control systems with the knowledge they need to improve their operational efficiency. CFE delivers the right information at the right time around the world through a variety of platforms.