AMTIL has partnered with a number of other industry associations around the world and commissioned Oxford Economics to produce a bi-annual Global Machine Tool Outlook. The report looks at major industry sectors, economic indicators and machine tool production and consumption. Here is an overview of the latest report.

There have been a number of developments, but at the forefront is China. Downward pressure on the Chinese economy remains high following the collapse in the stock market while the latest PMI data point to a further deceleration ahead. However, China’s slowdown is not limited to the domestic economy. Indeed, China is casting a major cloud over the rest of the world, denting regional and global trade and investment. It is expected that Chinese growth could fall below 6% in 2016.

Moreover, despite interest rate cuts, the risks in China are on the downside given the slide in the stock market and the strength of the yuan over the last year. The move to weaken the yuan in August suggests that growth may be well under the published headline numbers, and be followed by further currency falls. Linked to the weakness in China, another development has been the renewed decline in global commodity prices. Oil prices are currently trading under $50/barrel, down from a peak of $64 in May 2015. Consequently, the report forecasts an annual average of $54/barrel in 2016. At a country level, with oil importers far more numerous than oil exporters, the net impact on sentiment from lower oil prices should be overwhelmingly positive but this has been limited by weaker demand from a number of emerging markets, particularly those with close ties to China.

Among the main emerging markets, Brazil and Russia are suffering the most. Interest rates in Brazil were hiked further despite the economy being in recession, while in Russia the renewed slide in oil prices and rouble depreciation could halt interest rate cuts and may choke off hopes for a modest recovery next year.

In the developed world, the US is continuing to grow steadily but a closer look shows that a stronger dollar is dampening industrial output. Meanwhile, economic activity in the Eurozone and Japan are being underpinned by declines in their currencies as a result of loose monetary policy. Furthermore, the risk of a Grexit (Greek exit) has receded, although it still remains a possibility, and this will help Europe’s recovery broaden out from a mainly consumer-led recovery to higher contributions from investment and exports. Overall, the report expects world GDP to expand by 2.8% in 2016, down from 3% in mid-2015.

At the same time, prospects for industrial production have also weakened. It is forecast that world industrial production will rise by just 2.8% in 2016. On a regional basis, forecasts have been revised lower across the three regions. Although Europe remains the drag, with industrial activity set to grow by 1.4% in 2016, the Americas too are unlikely to perform much better, edging up by 2.4% in 2016. At the same time Asian industrial production is expected to expand by 3.5%, much lower than the forecast of 4.9% in previous reports. This is largely due to much weaker prospects for China but also for the surrounding region. On a sectoral basis, those which are closely related to developments in emerging markets have typically seen the heaviest downgrades. But even in the relatively insulated aerospace sector, the outlook is less healthy than it was previously as the slowdown in China raises concerns that potential air travel demand has been over-estimated. In contrast, although precision instruments will see growth contained by a strong dollar, prospects in China are healthy as production there moves up the value chain.

Reflecting the bleak industrial production last year, the report highlights global output in the key machine tool sectors (machine tool-weighted output) expanded by a meagre 1.3% in 2015 but is forecast to rise by 5.8% in 2016. At the same time, world investment by the key machine tool customer sectors declined by 3.1%, the first drop since the global recession, before increasing by 4.2% in 2016. As with output, Europe will also remain the laggard in investment, with spending plunging by 13.8% last year before gradually recovering in 2016. Meanwhile, Asian investment is forecast to rise 4.3% after a fall of 0.1% in 2015 while investment in the Americas is forecast to rebound by 3.5% after a decline of 2.6%.

For 2015 as a whole, consumption plunged by 11.9% in US$ terms, with all three major regions experiencing falls in machine tool demand, before a recovery begins to emerge in 2016. A combination of deterioration in China, heightened uncertainty and subsequent concerns regarding the global outlook as well as falling commodity prices are all key parts of this outlook.

The full Oxford Economics World Machine Tool Outlook is available to AMTIL members. Please contact Shane Infanti at for more information.