German mechanical engineering sentiment improves despite job cut warnings

Sentiment within Germany’s mechanical engineering and industrial plant manufacturing sectors is improving, according to the latest survey by the industry association VDMA. In the third quarter, 34% of approximately 800 surveyed companies rated their current situation as “positive” or “very positive,” up from 28% in July. Furthermore, 33% of companies expect business conditions to improve over the next six months.

Growth is being driven by smaller client industries, including defense, aerospace, and medical technology. Additionally, the electrical and electronic industries are benefiting from significant investments in artificial intelligence. However, the chemical industry faces a grim outlook, and the recession in the automotive sector continues to strain subsectors such as robotics and automation.

Despite the rising optimism, VDMA chief economist Johannes Gernandt warned of “cautious optimism.” He noted that the sector remains pressured by geopolitical crises, intense competition from China, and high operational costs within Germany. Consequently, job cuts are expected to continue; while 52% of companies do not plan workforce changes, over 30% reported that they must reduce their number of employees due to the uncertain business environment.