The German machine builders are reacting to the war in the Ukraine and the increasingly fragile supply chains and cash in on their forecast early in the year.

As the industry association VDMA announced on Friday, it no longer expects production to grow by 7 percent in 2022, but only by 4 percent.

And that only with reservations: depending on how the conflict develops, the scenario could look even bleaker, said VDMA President Karl Haeusgen.

Uwe Marx

Editor in Business.

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The first German mechanical engineering company took the correction of the forecast as an opportunity to criticize the Russian government harshly.

And he classified the importance of the Russian market.

Former American President Barak Obama was right when he once described Russia as a middle power.

That was "even a polite description", even if the Russians didn't like it.

According to Haeusgen, the country had been "ruined" by President Vladimir Putin and his "clique" in recent years.

The war overlaps

Today it has little to offer apart from military technology and natural resources.

Russia ranks ninth among the export markets for German machine builders – with a volume of 5.5 billion euros and a share of almost 4 percent in total exports.

The Russian market is basically dead, and if the war lasts months or years and German companies are expropriated, "a long ice age" threatens.

The VDMA was one of the first major industry associations to support the German government's tough stance on Russia.

"We stand by that," said Haeusgen.

His own company - HAWE Hydraulics from near Munich - stopped doing business with Russia immediately after the outbreak of the war.

The company, with around 2,500 employees and a turnover of just over 400 million euros, is a typical German mechanical engineering company in that the Russian market accounts for less than 2 percent of its business.

The war coincides with the industry's major difficulties in obtaining sufficient raw materials or components.

Above all, electronic components and metal products would become scarce.

A survey of 550 VDMA member companies revealed that around three quarters of the companies reported significant problems with their supply chains.

Projects would have to be postponed, sales would collapse.

85 percent rated the war as a serious or noticeable risk.

Gloomy future expectations

As far as future expectations are concerned, things look even bleaker.

Basically, all companies expect conditions to be either consistently bad or even worse for the next three months.

If machines are 95 percent complete and cannot be delivered, but remain in the company because they have not received any chips for months, then that is "a very big problem".

A higher number of bankruptcies could be the result.

Haeusgen said anyway: "The machine builders will cope with the current situation." This is mainly due to the fact that the resilience of the industry is traditionally high and they started this difficult year with a record: the order intake has never been so high.

84 percent of the machine builders surveyed are therefore assuming an increase in sales this year as well.

It is also favorable that the currently high energy costs in the industry have little impact.

Among corporate expenditures, those for energy are in the low single-digit percentage range.

Mechanical engineering uses comparatively little energy to produce, and Haeusgen says: "That's why none of our companies collapses."

This is likely to change if geopolitical tensions increase and China becomes involved.

If the Russian market is small, the Chinese one is very large.

Haeusgen sees a cluster risk here - for the industry, but also for his company.

China accounts for a little less than 10 percent of German mechanical engineering production, which is expected to reach 238 billion euros this year.

HAWE Hydraulic even achieves more than 20 percent of its sales there.

The VDMA President speaks from his own experience when he urgently advises his branch to reconsider the geographical distribution of sales.

It's about finding new markets before it's too late.