Germany's Machine Tool Industry Stable, Recovery Expected in 2026
Germany's economic outlook is showing signs of improvement, with increased spending on defense and infrastructure, and a new investment package. The machine tool industry, a key sector, has seen stable orders in the second quarter of 2025, and sentiment indicators suggest a turnaround in the industrial sector. However, uncertainty caused by US tariff policies and other global crises is causing investors to adopt a cautious approach.
The German machine tool industry received stable orders in the second quarter of 2025, matching the levels of the same period in 2024. This stability is reflected in the ifo business climate index and international PMI, which indicate improved sentiment and a potential end to the industrial sector's slump. Despite this, investors are adopting a wait-and-see approach due to uncertainty caused by US tariff policies and other global crises.
In the second half of 2025, the main sales impulses for the German mechanical engineering sector are coming primarily from non-Euro countries, with a 10 percent order increase in July. Orders from Eurozone countries remain stable but show no growth. The USA, the most important single export market, has seen a decrease in overall foreign orders recently. Domestic orders fell by 14 percent, while export orders increased by 7 percent in the second quarter of 2025.
The recovery of the machine tool industry is expected in 2026, driven by domestic demand. Sales of machine tools in the first half of 2025 were down 9 percent, but the EMO 2025 exhibition in September is expected to provide a crucial boost. In the first half of 2025, the main impetus came from Europe, despite no pickup in domestic German market demand. However, the 15 percent US tariff is expected to increase costs and significantly inhibit German exports to the USA. In the first half of 2025, orders fell by 5 percent, with domestic demand down 22 percent and export orders up 4 percent.
While the German machine tool industry shows signs of stability and potential recovery, the impact of US tariff policies and other global crises is causing uncertainty. The recovery is expected in 2026, driven by domestic demand, and the EMO 2025 exhibition is expected to provide a crucial boost. However, the 15 percent US tariff is a significant challenge for German exports to the USA.
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