From the CEO: Global Machine Tool Forecast gives confidence, despite slight weakening of figures

The full Oxford Economics report has so much detail in it, I found it hard to know where to start in giving you some information that may be of interest. So what I have done is focus on areas that may give some context to the overall report and highlight some high level activity that is apparently on the global stage.

The most recent survey data points to weaker manufacturing activity in the quarter from July-September 2022. The lower right quadrant of the Global Supply Chain Barometer shows a manufacturing sector still expanding, but in most cases surveys have weakened significantly over the last three months. The lower left corner is consistent both with shrinking manufacturing output and worsening over the last three months. Of the major economies shown in this graph, only India and Indonesia are still seeing an expansion which appears to be strengthening.

Interestingly, the Australian PMI dropped 3.2 points to 49.3 points in August 2022, indicating a slight contraction (seasonally adjusted). This is the first time the index has contracted since January 2022 following the Omicron outbreak during the summer break. This would put us on the graph around the same area as China over the past three months.

There are significant supply chain pressures in late 2021 through to early 2022 – from semiconductor shortages, labour shortages, to shipping backlogs, raw material issues, to supply constraints due to the war in Ukraine – that have held back production, most notably in car production. Global supply chains have been easing over the past six months and have now fallen to the lowest level in more than 18 months. While pressures remain above normal, the momentum in this indicator is clearly down, although it is worth noting that some of the easing is likely related to weakening demand.

The past seven years of machine tools sales, using 2015 as a baseline and following the global trough in Q2 of 2020, orders are back at pre-pandemic levels signalling the strength in demand over the past two years.

CECIMO 8 is the combined major eight European countries and, along with the US, have tapered somewhat in the past quarter. However, despite some small signs of weakening, machine tool sales are still the highest they’ve been over the past seven years, highlighting a remarkable achievement given the COVID crisis and the impact it has had on so many aspects of our lives.

A number of industry sectors have experienced some volatility over the past year or two. The big ‘winner’ from COVID, if that can be said, was the electronics and electrical engineering sector with 15.1% growth in 2021 and a forecast of 7% growth in 2022. It is expected that this industry will cool off over the coming few years.

The strongest growth forecasts are in the sectors with pent-up demand – aerospace and automotive – although both these sectors are vulnerable to an inventory-led swing if demand slows significantly.

From 2023 through to 2026, global forecasts have industry production and GDP growth around the 2.5 – 3.0% per annum and reasonably stable. Overall, industry sector growth will continue to push machine tools sales over the coming few years and some stability in production and growth figures point to a relatively healthy outlook.

The Oxford Economics Global Machine Tool Report is available to all AMTIL members on request. Please contact Shane Infanti on sinfanti@amtil.com.au for a copy.

For more information on AMTIL membership please visit amtil.com.au/join-amtil