Western German manufacturing: Reduced investments planned

According to the results of the recent Ifo Investment Survey, the firms in western German manufacturing increased their investments in 2008 by nearly 9%. Especially the large firms increased their investments last year, whereas the small and medium-sized enterprises reduced or only slightly increased their spending on new plant and equipment. In light of the current extremely difficult economic situation, the investment propensity of manufacturing firms has weakened on a wide scale. According to the survey responses, firms plan to reduce their investments by a nominal 4 percent in 2009; the real decline should amount to 3 percent due to falling prices for investments in plant and equipment. This quite moderate decline is due primarily to the partially lively investment activity of some large firms. In contrast, companies with fewer than 500 employees plan to cut their investments more strongly - the smaller the firm the bigger the cuts. A further indication of a weakened investment propensity is the development of incoming orders of mechanical engineering firms, which provide a good indicator for investment propensity. Since the beginning of last year, orders in this sector have declined. Since the economic situation has only worsened since the survey was conducted, it cannot be ruled out that western German manufacturing firms will reduce their investment plans even further. As expected in times of slowing investment activity, the replacement motive has gained in relative importance. On average, this motive was in first place in 2009 at 32%, followed by intentions to expand capacity.