This may hurt… You know that one person that always ruins everybody’s mood? Well, today it will be me.
Currently everybody is on cloud nine in the discrete automation industry. 2017 has been an incredible year and so far, 2018 is still going strong. The forecast in our studies also shows a positive 2019 and 2020, under the assumption that process industries drive the market.
Now this has two downsides.
- There are many SMEs (machine builders as well as suppliers) that do not serve the process industries. These companies do not have the possibility to counterbalance losses from the discrete markets.
- What if the turn-around in the process industries does not happen?
We expected a CapEx growth in oil & gas in 2018 already, but the market has not recovered and remained flat. There is also a lot of political uncertainty globally, which means that long term investments may be further postponed, and large CapEx projects will be put on ice or replaced by smaller ones.
Indicators for Concern
But what are the reasons for this pessimistic outlook? First, the process industries may not recover, and you simply cannot bet on larger CapEx project to come your way at a given point in time. There is always uncertainty. We strongly believe that the bounce back of the process industries will happen and most indicators point in this direction (for example Honeywell, Siemens, and others have reported strong incoming order figures for their process industry divisions). On the other hand, the overarching business cycle may turn negative. A number of mature economies have seen strong growth in 2017 and 2018 so far and it is unlikely to continue. China remains volatile for an economy of that size. Interest rates are low and pose a further threat and if increased it would make CapEx more expensive and slow down demand on the consumer side.
Next to these ‘maybes’ there are also some more concrete reasons for concern on the machinery markets. ARC has recently published its new data on the machinery index and there are some worrisome indicators.
We still see year over year growth, but on a quarter to quarter basis, we saw the third consecutive quarter with negative growth. In Q2, the growth rates in many individual machinery markets (ARC covers 22 markets) have fallen below the long run trend, indicating a slowdown. This pattern of slowdown is currently observed in mining machinery, compressors, food & beverage, converting, HVAC, material handling, semiconductor, electronics, robotics, metal forming, and partly in metal cutting.
So far, this slowdown is nothing extraordinary. It is more a normal business cycle than a financial crisis. However, it is important for automation suppliers and machine builders to be careful right now, observe the market, and maybe cut back on larger spending.