As a highly cyclical sector, machinery and equipment is often hit hard and fast during slowdowns and recessions. As China went into festive season in late 2019, global exports started to decline and dipped to a low point of US$86 billion in April 2020 at the worst of the pandemic.
However, global exports rebounded shortly and returned to pre-Covid levels of US$112 billion by September 2020, and averaging close to US$119 billion per month since then.
Allianz Trade publishes a sector report July 19 to look into what drives the positive momentum in this highly fragmented and capital-intensive sector.
Many traditional end-markets for the machinery and equipment sector have been rebounding across the globe driven by pent-up demand (e.g., energy, mining, construction and agrifood), which acted as a tailwind for the sector over the past 18 months.
This is especially so for agricultural machinery and data-processing equipment, both smaller segments of the sector. They are currently experiencing strong growth compared to pre-pandemic levels while machinery for the automotive, transportation equipment and the metals sectors lag behind.
While we expect global machinery and equipment exports to grow at a moderate 3% in 2022, the sector remains vulnerable to risks that are looming and challenges to linger throughout the year:
- Rising interest rates and economic slowdown could hurt capital expenditure plans
- Lockdowns causing further disruption to the highly fragmented supply chain
- Market developments on commodity prices (i.e., energy and metals)
Commenting on the sector, Paul Flanagan, Regional CEO at Allianz Trade in Asia Pacific, says: “The positive momentum of the sector is clearly driven by China. While Germany and the US, the second and the third largest players, are now above their late 2019 levels, their momentums have not been as strong.
“Apart from China, Singapore and Taiwan are also key Asian markets as they share similar vision in terms of cultivating industrial parks that facilitate collaboration, innovation and strategic partnerships between complementary companies.
“Both markets should benefit from the positive global momentum and remain resilient even in an economic downturn due to their positioning in the tech-intensive machinery sector.”
Photo credit: iStock/ ndoeljindoel