Stagnation on the horizon for the Industrial Goods sector – a fragile outlook for 2024

It has been difficult for the Industrial Goods sector to greet 2024 as a “Happy New Year”. 

After a post-COVID bounce, the sector witnessed a pronounced slowdown in 2023, as economic conditions worsened, and energy shocks took their toll globally. Despite the relief that was provided by easing supply chain issues, revenues are expected to stagnate – or in fact fall when adjusted for inflation – across 2024 and 2025, according to AlixPartners’ recent Industrial Goods study.

The turbulence ahead demonstrates how global industries and economies continue to be disrupted at an ever-increasing frequency and magnitude. As one crisis subsides, another emerges outside of traditional economic cycles.  

A deteriorating fiscal outlook, rising geopolitical risks, and further volatility in the energy and commodities markets will all put pressure on future industry performance. No regions will be immune from these factors, and revenue parity with 2023 is expected to largely be driven by the continued effects of elevated inflation and historical price rises, accelerated by US and Chinese companies early in 2021 and followed by more modest increases in Europe. Supporting volume increases will only likely materialise in 2025 and beyond.

A fragile picture in Europe, but sector performance will vary

The outlook for European industrial manufacturers is fragile – the Mechanical Engineering Industry Association (VDMA), an association of more than 3,500 German and European mechanical and plant engineering companies, has revised its production forecast downwards for 2024, from -2% to -4%. At the association’s annual press conference, President Karl Haeusgen cited falling order backlogs as a key indicator of this impending stagnation, as investment activity slowed in the USA and China.

Such macroeconomic shifts will hit export levels hard, though we expect growth and performance across segments and countries to be uneven. This was also seen in 2023, where segments with high energy intensity or highly reliant on investment demand took the heaviest hits. 

Globally, the plastic/molding, robotics and automation, and machinery industries demonstrated slower or declining revenue growth last year, as weaker B2B demand and rising energy costs hampered production levels. Slower sales of new cars during a financially constrained year for consumers in 2023 also dragged down performance. However, the recovering airlines industry and rising defence spending supported faster growth in some Industrial Goods segments.

By contrast, higher value-added and less cyclical segments sustained growth momentum in 2023 and showed the strongest performance amongst all Industrial Goods sectors in 2023, as the shift towards green energy and investment in digital tools continued to support demand. B2C-centric manufacturing industries, such as Farm/Garden or Food/Packaging, also showed revenue growth in 2023, benefiting from stable consumer demand.

The critical challenges ahead

Levels of industry disruption remain high. The recently released 2024 AlixPartners Disruption Index reports that projections for global economic growth are at their lowest in 20 years. With that challenging outlook, more than a third (37%) of executive respondents expect their business models to change significantly in 2024 due to disruptive forces. And 44% more respondents say they are reactive to disruption versus 12 months ago.

Empirical evidence from AlixPartners’ 2023 Turnaround and Transformation Survey has also pointed to distress on the horizon for European and German Industrial Goods companies in 2024 – bearing out the most recent forecasts – with challenges most likely to be seen in the areas of cost reduction, flexibility, workforce, and the availability of capital.

So how can Industrial Goods companies counter the inclement trading conditions to strengthen their competitiveness in a challenging market and secure their profit margins?

In our second article, we’ll explore in more depth how the Industrial Goods sector can build greater resilience to face the difficult market conditions that we see ahead – from energy management to careful cost and pricing control – in a persistently disrupted world where organizational transformation is no longer optional, but essential. 

Please contact us to discuss our Industrial Goods study in more detail.