Demand for machine tools, a key component of the German powerhouse economy, collapsed in December, threatening the jobs of 25,000 workers this year, an industry body said on Tuesday. "The fourth quarter was the worst quarter since 1958," Manfred Wittenstein, president of the German Engineering Federation, or VDMA, was quoted by a statement as saying.
That year however marked the start of a significant five-year growth phase for the German machinery sector which ended in 1962. The German economy is the biggest in Europe and the machine tool industry plays a big part in its strength and export prowess.
In December, orders for machine tools, used to produce other tools, parts and consumer products, plunged by 40 percent from the equivalent figure in 2007. VDMA said it expected output to shrink 7.0 percent this year as the global economic downturn curbed both domestic and foreign orders. Strong variations were expected between different branches in the sector however.
Orders fell by 29 percent in the last quarter of 2008 compared with the figure for the same period a year earlier, VDMA said. For the year as a whole, the sector resisted weaker global economic activity reasonably well, with an increase of 5.4 percent in the value of its products sold to 194 billion euros (250 billion dollars), strong exports to developing countries and the creation of 40,000 new jobs, VDMA said.
Major markets for German production were Brazil, China, India and Russia, the so-called BRIC countries. The value of exports even reached a new record last year, gaining 8.0 percent over the level in 2007. Along with automobiles, machine tools are a key export for Germany, which remained last year the world's biggest exporter in US dollar terms of manufactured goods.
China will likely take over the crown this year, however, as firms there have suffered somewhat less from the global downturn. Although Germany has fewer global conglomerates than other leading economic powers, it is home to a host of family-owned small and medium-sized enterprises known as "Mittelstand" that have become world leaders in niche product areas.
IHS Global Insight senior economist for Germany Timo Klein said that along with the Swiss, German firms had fostered an engineering tradition of "putting quality ahead of quantity" which established the country's reputation for quality manufacturing.
But the German economy is nonetheless now in the midst of its deepest recession in decades, and after shrinking for much of last year, German officials forecast it will contract by a further 2.25 percent in 2009. Its export sector struggled in 2008 as imports surged, cutting its trade surplus by 8.7 percent from the level in 2007 to 178.2 billion euros.
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