Industrial machinery covers a vast array of devices: agricultural equipment, machine tools, packaging machinery, semiconductor equipment and robotics, to list just a few. Regardless of the machine type or application, the end product produced by these machines is often something purchased by a consumer—whether it is a box of cereal, a can of Coca-Cola, a TV, or a car. As such, the strength of machinery market is always closely linked to general economic performance, but other factors have a big influence on the industry, such as regulations and currency fluctuations, as well as new trends and technology.
The machinery production tracker from IHS follows output across 33 countries as part of three regional volumes examining Europe, the Americas and Asia-Pacific. When considered on a regional level, recent patterns are intriguing.
Following two years of significant growth, 2012 saw a turbulent year in all three regions, to varying degrees. The Americas fared well, with machinery production growing by 6.5 percent. The machinery market fared well in this region because of significant government investment in the U.S., plus the industry had the advantage of being a much more secure destination for investment than Europe during the prolonged sovereign debt crisis and austerity measures.
In Asia-Pacific, however, growth slowed to only 1.8 percent. A major reason for this was due to an unusually slow year for China, where production remained almost flat, largely as a result of overcapacity. At the same time, output in Japan was inhibited by a very strong yen. As recently as 2011, the Japanese currency reached a record of 76 yen to the dollar, significantly curbing its machinery exports. More recently, Japan has benefitted from a weakening yen, with the dollar-to-yen exchange now being over 105 yen, a level not seen in more than five years.
Europe, meanwhile, struggled as economic problems persisted. Several nations required bailing out by the European Central Bank and, for a while, there were genuine fears that Greece may even leave the Euro. With exports to outside the region still slow, and demand from within the Eurozone even worse, machinery production declined by 5.7 percent in 2012 (although it did look somewhat better when measured in Euros, with output increasing slightly).
During 2013, machinery production in Europe and the Americas headed in contrasting directions. In Europe, where there was significant pent up demand, a big improvement was noticeable with growth of 2.8 percent. However, output in the Americas slowed to 2.0 percent following a back-to-back years of strong growth.
Looking forward, the outlook for 2014 is expected to see further improvement in machinery production, but there remains fragility. Indications are that orders are tending to head upwards, but gradually, particularly in Europe and North America, where growth continues to be subdued.
Longer term, the outlook appears positive. Along with improving economic conditions, there are other factors helping to drive growth in machinery production. In packaging, for example, there is demand for more flexible machines to produce lighter packaging with improved aesthetic appeal and less wasted material. In food & beverage and pharmaceuticals there is greater demand for track-and-trace capability. Along with these factors there is a continued drive for higher speeds, improved efficiency and lower emissions, all of which should help push growth. Improved remote machine diagnostics as well as greater functionality and simplified user interfaces are also driving growth in the machinery market, partly as end-users look to compensate for the problematic engineering shortfall.
Andrew Robertson is a senior analyst with IHS.