Policy issues at European level affecting the mechanical engineering industry are handled by Orgalime's Mechanical Engineering Liaison Committee (MELC) and technical issues are dealt with in detail by the Technical Harmonisation Group (THG).
Mechanical engineering is one of Europe’s largest industry sectors with a share of some 9% of total EU manufacturing output. It is also one of the largest employers with some 169.000 companies (mostly SMEs) employing 3.3 million people. With 36% of the world market, Europe is the world's largest producer and exporter of machinery.
Mechanical engineering is an essential part of the industrial fabric of Europe. It is not only a supplier of capital goods to all other sectors of the economy, but it is also a significant consumer and provider of materials produced by the primary industries and increasingly a consumer and provider of services. Moreover, mechanical engineering provides not only the equipment, but also the skills and knowledge for improving existing processes and for developing new products in other industries. Its prime customer is the manufacturing industry. It is a highly cyclical industry whose performance depends on the investment cycles of its clients.
Mechanical engineering provides the largest trade surplus to the EU economy of any sector, some 78,9 billion euros in the EU-25 in 2004. It is therefore vital for the sector to remain competitive and flourishing, so that it can contribute as a motor of growth in the EU’s economy.
Mechanical Engineering is a very wide and diverse sector. The main sub-sectors as defined in the NACE nomenclature are:
- machinery and equipment (chapter 29 NACE Rev 1)
- machinery for the production and use of mechanical power, except aircraft, vehicle and cycle engines (chapter 29.1 NACE Rev 1)
- other general purpose machinery (chapter 29.2 NACE Rev 1)
- agricultural and forestry machinery (chapter 29.3 NACE Rev 1)
- machine tools (chapter 29.4 NACE Rev 1)
- other special purpose machinery (chapter 29.5 NACE Rev 1)
which cover an enormous array of machinery, such as lifting and handling equipment, machine tools, textile machines, agricultural machinery, construction equipment, transmission technology, compressors, pumps, heating ventilation and air conditioning equipment, combustion engines, windmills, etc.
The following chart (click to enlarge) gives an approximate breakdown of the importance of the main sectors of the industry, measured by production.
ORGALIME mechanical engineering industry
by sectors - 23 member countries
Production
The European mechanical engineering industry reached an annual value of production of about €450 billion in 2009. Employment is estimated to have reached 3 million employees.
This sector of the engineering industry that represents almost 9 percent of the value of industrial production in the EU plays a key role in the evolution of both competitiveness and productivity of industry in general. Among the most important customers is the manufacturing industry itself. It is a rather cyclical industry whose performance depends on the investment cycles of its clients.
The economic and financial crisis has affected industry of mechanical engineering more than any other sectors. Investment budgets were slashed and capacity utilisation fell dramatically in manufacturing industry, thereby reducing the market for investment goods.
Volume of production contracted by 20 percent in 2009.
Based on the official data for Orgalime industries in EU27 available so far for early 2010, we see the volume of production has levelled off. As a matter of fact the level or production has increased slightly since early autumn 2009.
The results from various business surveys have improved lately. The Commission’s monthly business survey shows that most of EU27 Orgalime sectors still consider order stocks well below average, but that the inflow of new orders has increased slightly. Inventories of finished goods have been reduced strongly over the last couple of quarters and will therefore not affect future production negatively. Other surveys, such as purchasing managers’ index or forward looking surveys such as IFO expectations, also show considerably stronger outcome than last year.
The financial sector across the globe is however not functioning properly. In many countries, credit is still tight, as banks are forced to consolidate their balance sheets, while not necessarily shunning the financial investments which led up to the crisis. Investment will therefore continue to be negatively affected. On top of this capacity utilisation in industry is still low. These factors among others will have a negative impact on investment goods industry that dominates our industry.
However, economic policies are clearly accommodating as interest rates are still low. Some factors are in place for a recovery, but any future expansion 2010 will be rather limited and start from a very low level. Orgalime expects a modest increase in volume of production in 2010 or by about 1.5 percent.
Foreign trade in terms of exports is expected to increase by 2.5 percent. Demand outside EU is clearly expanding at present, especially in Asia and South America. It is also estimated that employment will contract rather sharply in 2010, by some 2.5 percent. Low utilisation of capacity and limited access to credit negatively affect fixed investment. We expect that fixed investment will contract in our industry by 3.5 percent in 2010.
Economic shocks that our industry have experienced earlier as the oil shocks in the 1970s, financial turbulence in early 1990s and the burst of the IT-bubble some ten years ago show that the road to pre-level crisis could be bumpy and also take some time or about 4 years on average. There are reasons to believe that this will also be the case with the most recent crisis.
MELC and its subgroup THG has continued to actively defend the interests of the mechanical engineering industry both at the level of general industrial policy and other specific issues. This work is carried out through regular contacts with the officials of the EU institutions, in particular the Commission, the Council (working groups) and the European Parliament. Much of this work is carried out in close collaboration with European sector associations in the branch so as to reinforce the industry representation on issues of common interest.
Work carried out so far highlights a number of areas on which we believe we need to put more emphasis: research and innovation, investment promotion, market access and, above all, the framework conditions under which companies today have to operate in the EU. The issues of skills shortage, which is a growing problem, and the image of the mechanical engineering
industry, are also on the table.
At a regulatory level there are a number of key issues being managed either in THG or in specialised task forces or horizontal groups, including:
Operation of the internal market:
Health and safety legislation:
Environmental issues:
Mechanical Engineering Dialogue
MELC's aim is to promote the image of and develop relations for the EU's mechanical engineering industry at the European institution level. This is done both directly and in conjunction with European Sector Committees via an industrial dialogue with the Commission.
The Mechanical Engineering Dialogue's meetings provide a lively forum for a direct exchange of views between mechanical engineering industry representatives and the European Commission on a wide range of issues which affect manufacturers.
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