Cautious Optimism. business indicator report. Update on the economic Situation and Development in Selected Sectors GRUNDFOS MACHINING INDUSTRY

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1 GRUNDFOS MACHINING INDUSTRY Cautious Optimism Update on the economic Situation and Development in Selected Sectors business indicator report be think innovate

2 2 GRUNDFOS MACHINING INDUSTRY CONTENTS Economic Expectations for Key Countries and Industry Sectors (Source: ZEW indicator, ZEW, 11 December 2012) Fig. 2, New Passenger Car Registrations in Europe (Source: ACEA, 16 January 2013) Fig. 3, Machine Tool Order Intake in Germany (Source: VDMA, January 2013) Fig. 4, Machine Tool Order Intake in Japan (Source: JMTBA, January 2013) Fig. 5, Machine Tool Order Intake in U.S.A. (Source: AMT, 12 January 2013) Fig 6, German Business Climate Industry and Trade (Source: Business Climate Indicator, Ifo Institute, 19 December 2012) Fig 7, The Grundfos Global Automotive Indicators (Source: Automotive Information Platform, MarkLines.com, January 2013) Fig 8, The Grundfos Raw Material Price Index (Source: London Metal Exchange, Steel Business Briefing, CME Group, January 2013) About Grundfos Industry Indicators This quarterly newsletter can give you a general idea of which way the wind is blowing in the machine tools industry. It is a special supplement to our subscribers of Knowledge Link, our website for the machining industry. Almost all the charts and graphs here are publicly available. They come from the three major machine tool associations in Germany, Japan and the United States as well as global surveys from market analysts. We make the final graphs ourselves, the Grundfos Raw Materials Index and the automotive Monthly Production Output by country and manufacturer. We build the latter up from available automotive production figures. Grundfos Machining Industry segment uses automotive production statistics, because that market is such a big part of the machine tools industry. Based on that, we try to estimate how the coming one- to three months will look. Why do we want to share these statistics? Because we have a common interest in seeing how the market is doing. So please: read these statistics and comments as indicators alone We publish a full version of the Grundfos Industry Indicators quarterly in three languages, as well a monthly version in English only. The Grundfos Industry Indicators Copyright 2013 Grundfos A/S. Permission to reprint graphs, tables and data has been granted to Grundfos from the various organisations represented in the publication. If you have comments or questions on the data from those organisations, please contact them directly with the links provided. We welcome your other comments.

3 3 GRUNDFOS MACHINING INDUSTRY Grundfos analyst: 2012 Ends With Cautious Optimism The last two months of 2012 were difficult for the sectors in focus. New car registrations in Europe slumped and intake of orders in the global machine tool industry showed notable deflation. On the plus side, December reported stabilizing business expectations from an overall economic perspective. This means a slight increase in confidence about the future. Sales of light vehicles during the last quarter were also stable in Asia and even increasing in the United States. Nevertheless, there is cautious optimism over whether the global economy will really gain momentum in the future. Frank Baake Senior Strategy & Intelligence Analyst 1 Economic Expectations for Key Countries and Industry Sectors The Centre for European Economic Research (ZEW) writes, The ZEW Indicator of Economic Sentiment for Germany has increased by 22.6 points in December It now stands at a level of 6.9 points, thereby reaching positive territory for the first time since May The indicator s rise shows that the financial market experts expect the economic activity to stabilize until early summer Economic expectations for the Eurozone have increased in December as well. The corresponding indicator has risen by 10.2 points to 7.6 points. The ZEW Indicator of Economic Sentiment is ascertained monthly. Up to 350 financial experts take part in the survey. The indicator reflects the difference between the share of analysts that are optimistic and the share of analysts that are pessimistic for the expected economic development in Germany in six months. The survey also asks for the expectations for the Euro-zone, Japan, Great Britain and the U.S.A. For more information, visit ZEW s website at zew.de. Economic expectations for the Eurozone have hardly changed in October. The corresponding indicator has increased by 2.4 points to minus 1.4 points.

4 4 GRUNDFOS MACHINING INDUSTRY ZEW Indicator of Economic Sentiment (Germany)

5 5 GRUNDFOS MACHINING INDUSTRY 2 New Passenger Car Registrations in Europe In December, new car registrations declined by a sharp 16.3% in the EU, continuing a downward trend that commenced fifteen months ago. The decline is the steepest recorded in the month of December since In December 2012, there were on average two fewer working days in the region than in the same month in Over the whole year, demand for new cars reached the lowest level recorded since 1995, totalling 12,053,904 units. The resulting 8.2% contraction of the EU market (year-on-year) is the most important experienced since the 16.9% downturn in In December, most of the major markets recorded a double-digit downturn ranging from -14.6% in France to -16.4% in Germany, -22.5% in Italy and -23.0% in Spain. The UK was the only significant market to post growth (+3.7%). Overall, a total of 799,407 new cars were registered in the EU. From January to December, results were diverse across markets. While the UK expanded (+5.3%) and the German somewhat contained the decline (-2.9%), Spain (-13.4%), France (-13.9%) and Italy (-19.9%) faced a more severe downturn, leading to an 8.2% contraction of the EU market. For more information, see ACEA s website at acea.be. 3 Machine Tool Order Intake in Germany For the German machine tool industry, the order intake was in 17.5% in November, compared to the same month in 2011 and much less compared to high October orders (mainly from export countries) this year. The VDMA (Verband Deutscher Maschinen- und Anlagenbau German Engineering Federation) is a network of around 3,000 engineering industry companies in Europe. For more information, please visit the VDMA s website at vdma.org.

6 6 GRUNDFOS MACHINING INDUSTRY Machine Tool Order Intake in Japan 4 The order intake for the Japanese Machine Tool Industry in December 2012 was -27.5% compared to December 2011 and -4.6% compared to previous month November For more information, please visit the JMTBA s website at jmtba.or.jp Machine Tool Order Intake in U.S.A. 5 The Association for Manufacturing Technology (AMT) writes, November U.S. manufacturing technology orders totalled $ million. This total, as reported by companies participating in the USMTO program, was down 11.0% from October and down 8.5% when compared with the total of $ million reported for November With a year-to-date total of $5, million, 2012 was up 4.8% compared with The United States Manufacturing Technology Consumption (USMTC) report, jointly compiled by the two trade associations representing the production and distribution of manufacturing technology, provides regional and national U.S. consumption data of domestic and imported machine tools and related equipment. Analysis of manufacturing technology consumption provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity. For more information, visit the website at amtonline.org.

7 7 GRUNDFOS MACHINING INDUSTRY 6 German Business Climate Industry and Trade Ifo Business Climate Germany: The Ifo Business Climate Index for German industry and trade rose again in December. While companies assessed their current business situation as somewhat less favourable than last month, they were considerably less pessimistic about future business developments. As the year draws to a close, German companies are more confident about the future. In manufacturing, the business climate continued to brighten. Companies assessed their current business situation slightly less favourably than last month, but they are far more optimistic about the future than previously. Business expectations showed their sharpest increase since August Export expectations also continued to improve. The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses of firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months. They can characterise their situation as good, satisfactorily or poor and their business expectations for the next six months as more favourable, unchanged or more unfavourable. The balance value of the current business situation is the difference of the percentages of the responses good and poor ; the balance value of the expectations is the difference of the percentages of the responses more favourable and more unfavourable. The business climate is a transformed mean of the balances of the business situation and the expectations. For calculating the index values, the transformed balances are all normalised to the average of the year The CESifo Group, consisting of the Centre for Economic Studies (CES), the Ifo Institute for Economic Research and the CESifo GmbH (Munich Society for the Promotion of Economic Research) is a research group unique in Europe in the area of economic research. It combines the theoretically oriented economic research of the university with the empirical work of a leading Economic research institute and places this combination in an international environment. For more information, visit the website at cesifo-group.de.

8 8 GRUNDFOS MACHINING INDUSTRY 7 The Grundfos Global Automotive Indicators Data source: MarkLines Co. Ltd Toyota s production decreased in China in autumn due to reluctance to buy Japanese brand goods under the influence of anti- Japan demonstrations (territorial disputes). But that is considered as temporary, as the country numbers for November and December below indicate. Data source: MarkLines Co. Ltd

9 9 GRUNDFOS MACHINING INDUSTRY 8 The Grundfos Raw Materials Price Index Materials Update Source: London Metal Exchange, Steel Business Briefing, CME Group. Raw materials price index, General status January 2013 Source: London Metal Exchange, Steel Business Briefing, CME Group. Grundfos Cost Analyst Jesper Bjerregård Juul comments on the price fluctuations of raw materials and their impact on the manufacturing industry. He writes: Commodities modestly improve Commodities markets were characterized by modest movement in prices last month. Global macroeconomic figures moved in both directions, but with an overall positive tendency. In the US retail sales, housing construction, new orders, and industry figures all showed positive signs a general indication of an economy in progress. Positive signs were also seen in Germany, and the general Eurozone recession was helped by positive Purchase Managers Index (PMI) figures. China also is showing good growth. This positive news has caused a price increase in most raw materials in January. Aluminium prices fell 1.1 per cent in January but are expected to rise in coming months as automobile manufacturers are increasingly looking into aluminium to reduce the weight of cars and trucks and meet more stringent US fuel-economy standards. The stainless steel market is also due for an upturn due to automotive demand, a pickup in the housing market, and increased consumer spending.

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