European machinery market faces' correction '
According to one industry expert, Europe's machinery market will shrink by 10% in the next few years. Cesar Rodriguez Gabilondo, CEO and founder of MachinePoint Consulting, warned that overcapacity and slowing demand for plastic products could lead to a "10 percent correction "in Europe's general machinery sector, triggering lower prices and lower demand.
" I could be wrong, but I expect the machinery sector crisis in 2019-2020 to be triggered by a 2 to 3 percent contraction in demand for industrial products." Rodriguez said.
Those risks could include a trade war, a no-deal Brexit, the euro crisis in Italy, the migration crisis, a rout in emerging markets such as Turkey, driven by sanctions against Iran, or a rise in oil prices, he said.
Overcapacity and political risks affecting the machinery sector
" In the past eight years, European machinery production has grown 26 percent. Non-durable goods are up just 6 percent, "Rodriguez said, adding that orders placed in late 2017 and the first half of 2018 would also face" a significant increase in global production capacity."
At the same time, he noted that the production of plastic products in 19 major European countries remained stagnant in 2017, growing by only 0.57 percent.
The European Plastics and rubber Machinery Manufacturers Association (EUROMAP) and Eurostat related reports show that machinery production increased by 7% in 2017, and the German machinery trade body VDMA is expected to grow by 4% in 2018.
Rodriguez said the overexpansion was partly due to "well-intentioned incentives by European governments to increase industrial productivity and price competitiveness."
These include Italy's "hyper-amortization" program for capital equipment investments in Industry 4.0 and Hungarian government subsidies for capital equipment investments.
Rodriguez
" Norway is another example, where machine production has increased by 100 percent over manufacturing production in the past year." Rodriguez points out.However, this stimulus could lead to massive imbalances in the market.
Overcapacity in the steel market once prompted G20 countries to remove industrial subsidies when China ran a surplus. Rodriguez sees a similar situation with overcapacity in the plastics or beverage sectors.
"All of these factors have led to unjustified industrial surpluses that have driven global production of non-durable consumer goods and have contributed in part to low inflation around the world," he noted.
MachinePoint, headquartered in Valladolid, Spain, is responsible for sourcing, selling and relocating used industrial machinery needed in the plastics, packaging, food and beverage markets.
Rodriguez's comments chime with Euromap's warning that the market is likely to slow despite full order books.
Euromap had said at its general meeting on June 15 that long lead times and a shortage of skilled workers could lead to a slowdown in the machinery market despite an "unusually long boom".