Machinery & equipment sector risk report

The global machinery & equipment sector has a market value of around USD280bn and relies heavily on the APAC and North America regions, where revenues represent 34% and 30%, respectively, of the total market. The rest is split between EMEA (18%), South America (11%) and the rest of the world (11%).

As one of the most cyclical sectors, machinery & equipment is often hit hard during slowdowns and recessions. This was the case of 2020’s pandemic-linked downturn, when revenues fell by -10% y/y on average. However, the post-pandemic rebound was significant as various end-market customers resumed operations and increased new orders quickly, making revenues to jump by around +12% in 2021 and +15% in 2022. Then, revenues faced a deceleration in 2023, growing only by +3% y/y (versus an average sector revenue growth of +6% in the last five years). This slowdown was explained by the recession fears arising from central banks raising interest rates to control inflation, which led to lower demand for machinery.

The high levels of accumulated backlogs observed in most of 2023 and easing supply-chains provided an above-average output capacity for the sector, with companies being able to ramp up production and increase deliveries to customers. More recently, backlogs have declined significantly as production rates have been exceeding softening new orders. For 2024, we expect new orders to remain mostly muted and revenues to grow by +2% y/y due to the persistent economic and political uncertainty, co,pounded by ongoing geopolitical tensions. Indeed, many companies, both manufacturers and buyers of machinery & equipment, have been cautious in terms of investment and restocking, adopting a “wait and see” approach.

The cooling in new orders has been observed mostly from farmers and construction companies. On the one hand, farm fundamentals have weakened, which has led companies in the upstream-food sector to reduce their capex for agricultural machinery and farm-equipment purchases. On the other hand, construction spending remains restrained due to still-high interest rates. Mining equipment volume could also decline in 2024 after an increase of +3% y/y on units sold in 2023 for this particular industry. However, in the mid to long-term, sales of metals & mining equipment are poised for continued expansion, with demand expected to accelerate from companies exploiting key raw materials such as aluminum, copper, lithium, nickel and rare earth minerals, as all industrial sectors continue to develop their net-zero transition. In our view, the technology sector is the only one planning capex increases this year, from which we expect an enlarged demand for industrial machinery used in the manufacture of semiconductors, gadgets and tech devices.