Decline in Demand for German Mechanical Engineering Products
Germany's mechanical and plant engineering sector faced a decrease in new orders in June 2025, according to a report by the industry association VDMA in Frankfurt. The decline was primarily due to a combination of factors, including a high baseline effect from unusually large previous orders, a general dip in both domestic and foreign demand, and the ongoing trade dispute between the USA and the EU.
In June, the sector experienced a 5% fall in engineering orders compared with the previous year. While demand from Eurozone countries increased strongly by 19% in the second quarter, this positive regional demand was outweighed by overall declines. Domestic orders decreased by 2% and foreign orders, including those from non-Eurozone countries, decreased by 1%.
A key factor in the apparent sharp decline was a very high baseline from the first quarter of 2024, where an exceptionally large order worth nearly €500 million inflated previous figures, making current order intake appear lower in comparison.
The ongoing trade dispute and uncertainty between the USA and the EU had created a challenging trade environment. Though a fundamental trade agreement was reached by July 2025, unresolved sector-specific issues (like steel) and related EU policies such as the Steel and Metals Action Plan to limit imports underscore continuing trade tensions that have dampened confidence and orders. These trade tensions contributed to "upheavals in the established global trade order," increasing uncertainty that affected export-driven sectors like mechanical engineering.
Despite the decline, the first half of the year still showed a minimal increase in real order values of 1 percent. However, this increase was solely due to increasing demand from Eurozone countries. The report does not provide any forecasts for future trends in the mechanical and plant engineering sector.
Johannes Gernandt, the chief economist of VDMA, stated that the growth in the first half of the year is a positive sign that Europe is strengthening its own location. He also attributed the declines to the ongoing trade dispute with the USA. At least the ongoing trade dispute provides expensive planning security for companies, according to the VDMA expert.
The report does not provide any information about the performance of the mechanical and plant engineering sector outside of the Eurozone. However, the decline in orders from non-Eurozone countries is mentioned. The impact of the now planned 15 percent tariff on imports into the USA cannot yet be assessed.
In conclusion, the decrease in new orders reflects a mix of temporary effects from high previous order volumes, a slight weakening in domestic and broader foreign demand, and the negative impact of trade uncertainties stemming from the ongoing USA-EU trade disputes, despite robust demand from Eurozone countries.
Finance played a crucial role in the mechanical and plant engineering sector's decline in new orders, as the ongoing trade dispute between the USA and the EU has created a challenging trade environment. The high baseline effect from unusually large previous orders, a dip in both domestic and foreign demand, and trade tensions contributed to this decrease, despite an increase in demand from Eurozone countries in the first half of the year.
