World Industry Perspective: The Impact of the Credit Crunch on Special Industrial Machinery

According to the WIS barometers—research undertaken to identify the risks and opportunities in the current economic climate—industrial machinery is not well positioned for cyclical recovery in the United States due to low capital efficiency driven by high-capacity overhang risk. As such, the effects of this hit could take longer to dissipate. Manufacturers in the United States could suffer from a permanent fall in global market share as Asian producers become more prominent during the interim period.

Slowing major Western European markets are hitting industrial machinery sectors that are already suffering from poor export performance due to a strong euro and lower demand from U.S. end-markets. That said, agricultural machinery is holding up well, assisted by high farm prices and because producers are more efficient than their American counterparts. With interest rates being cut and the euro weakening, firms in the sector should pull through despite the headwinds. As European firms are less leveraged, the cyclical nature of the industry means it is well positioned to recover in line with capital expenditure growth in the manufacturing sector.

With Asian exposure to the financial crisis limited, particularly in emerging markets, firms are taking the initiative to expand output. For example, Xuzhou Construction Machinery recently issued a large amount of new shares to invest in engineering machinery assets, reducing the traditional reliance on Western imports of industrial machinery. This should further the ascendancy of the manufacturing sectors in BRIC markets.