General Economic and Industry-Specific Conditions

The global economy’s engine is not yet running smoothly despite high risks

According to leading economists (including the IMF, IfW, ifo), the expansion of the global economy will continue at a moderate pace, with private consumption likely to pick up, particularly in Europe, on the back of higher real wages. In addition, unemployment in the industrialized countries remains at a low level. However, it is becoming apparent that inflation will only fall very slowly towards the central banks' two percent target, which means that monetary policy will be eased more slowly and less strongly than originally expected. Risks for the global economy also result from the geopolitical crises, for example in Ukraine and Russia and in the Middle East, but also from the uncertainties surrounding the US presidential election and the shifts in the political balance and direction in Europe following the recent election results. A further fragmentation of the global economy with an escalation of trade conflicts would put a strain on the global economy. The International Monetary Fund (IMF) confirmed its cautious assessment in July 2024. According to this, the global economy will only grow moderately in 2024, with an increase of 3.2% (prior forecast in April 2024: 3.2%). Emerging and developing countries are expected to grow on average by 4.3% and industrialized countries by 1.7%. The latter include the USA, with growth of 2.6%. In Great Britain (+0.7%) and the euro area (+0.9%), the recovery remains timid.

German economy should gradually regain its footing

According to the Deutsche Bundesbank, there are signs of a slight economic recovery in the second half of 2024. Various leading indicators signal a brightening of the mood among consumers and companies. Due to the strong wage growth, inflation remains at an elevated level for the time being. Although the core rate is gradually declining, the disinflation process is progressing more slowly than expected. Foreign demand and, increasingly, private consumption are likely to form the pillars of the moderate economic recovery. According to the Deutsche Bundesbank, private investment activity, on the other hand, will initially continue to decline and will not pick up noticeably until 2026. It is therefore expected that the German economy will only slowly emerge from its two-year period of weakness. Economists' forecasts for 2024 are unanimous in predicting only minimal growth. The Deutsche Bundesbank and the IMF are only expecting an increase of 0.2% in Germany. In its summer forecast, the ifo Institute is also only predicting a slight increase of 0.4%.

Mechanical and plant engineering still lacks new cyclical impulses

Since the revival of investment activity is likely to lag behind the general economic recovery, mechanical engineering will initially remain in difficult waters. The German industry association VDMA expects real global machine sales to stagnate in 2024, with western industrialized countries likely to suffer additional losses. For example, a decline of 3% is expected for the euro area and a minus of 1% in the USA. Industrial capacity utilization is often very low and interest rate cuts are still hesitant to noticeably boost demand for capital goods. In addition, political uncertainty and military conflicts are dampening the willingness to invest. However, with investments in an emission-free economy, more and more structurally indispensable measures are coming into focus - because entire value chains have to be realigned and redesigned. However, these dynamic impulses will only become noticeable in the medium term. As a result, order intake in German mechanical and plant engineering has recently fallen further. By June 2024, it was in real terms 12% below the already weak level of the same period last year. Domestic orders fell by 18%. The order volume from abroad was around 9% lower. Due to the weak order situation, the VDMA forecasts that the industry's production in Germany will shrink by 4% in real terms in 2024. A revival in investments and thus in demand for machines is not expected until 2025.

Further recovery of the automotive industry not expected until 2025, trade conflicts in the field of electromobility could escalate

As the economy, housing and transport decarbonise, the transformation of the automotive sector towards fossil-free drives is irreversible. The availability of battery-electric vehicles is of great importance here. China is increasingly growing into the market leader and is actively entering other markets. In response, the USA and the EU have imposed special import duties on electric vehicles from China. The Chinese government is planning corresponding countermeasures. It is currently difficult to assess to what extent the trade conflicts mentioned could escalate and potentially put a substantial strain on the markets. Global Data (GD, formerly LMC Automotive) currently assumes that global production of LV (light vehicles) will reach almost 91.1 million units (+0.3%) in 2024. An increase of 3.0% is currently forecast for 2025. According to this, manufacturers will record growth in North America in 2024, while production volumes in Europe are expected to decline. In 2025, these regional trends are expected to reverse. Structurally, the production of LVs with pure combustion engines is expected to decline by 7.9% worldwide in 2024, and the number of battery-electric LVs (BEV + PHEV) is expected to increase by 22.2% to 17.5 million units. The market for commercial vehicles (CVs) is expected to remain under pressure in 2024 due to the economic situation. According to GD, global CV production will fall by a total of 1.5% (trucks -2.5%, buses +10.7%), with significant losses in Europe and North America, whereas an increase in truck production and further growth in buses are anticipated for 2025.

Construction industry in China and Europe remains in downward spiral in 2024

There are no signs of a turnaround in the construction industry in China, although the government is trying to support the real estate sector with various measures. Nevertheless, even stabilization over the course of the year is very unlikely, as the key data from the NBS statistics office indicate a continuation of the recession in building construction - especially in residential construction. While the real volume of all building investments currently under construction is already shrinking by double digits (6M: -12.0%), new construction starts are falling about twice as much (6M: -23.7%). The sales of new buildings declines considerably as well (6M: -19.0%).The slump in residential construction is much more severe than in the construction of commercial buildings. In view of the general economic weakness, high interest rates and construction costs, and increased government deficits, the prospects for the construction industry in Europe for 2024 remain clearly negative. However, the outlook for 2025 is brightening in most countries with the exception of Germany and France. For 2024, the industry network Euroconstruct (including ifo) initially forecasts an accelerated decline in real construction output of 2.7% for Europe (West -3.0%, East +1.2%). The downturn in 2024 is likely to be particularly strong in Scandinavia and Italy, but

also in France, the Netherlands, Austria and Hungary. This will overshadow the slight growth in Spain, Portugal and Switzerland, especially since Germany's construction industry will also remain in recession in 2024 with a significant minus of 3.0%. According to the ifo Institute, more than every second construction company in Germany is suffering from a lack of orders, mainly in residential construction. The HDB association therefore expects a further decline in sales in the construction industry of 4.0% in real terms in 2024 after already three weak years.

US construction industry continues to grow, investments in water management boom

The industry experts at FMI expect the latest trends to continue throughout 2024 in the USA. Almost all construction segments are expected to grow despite the still high interest rates and the slowing momentum of the US economy. The only exceptions are likely to be the construction of commercial buildings (-7%) and multi-family houses (-1%). After the sharp slump in the previous year, new construction of single-family houses will recover strongly in 2024 (+7%) according to the FMI forecast. An increase of 4% is anticipated for the conversion, replacement and extension of apartments. Overall, US residential construction should therefore grow by 4% in 2024. This is better than expected at the beginning of the year. In addition, the construction of other buildings (+6%) and infrastructure construction (+6%) are continuing to grow.

According to market estimates, the boom in construction investments in the water industry is expected to continue. The water supply sector remains one of the growth areas in 2024. It is expected to grow by a total of 8% in the current fiscal year. This will be supported by investments in infrastructure, which are expected to continue in the coming years.