MOSCOW: Germany’s machinery manufacturers are increasingly feeling the pinch from Russia’s economic troubles and continue to lose market share to Chinese competitors, as Moscow seeks closer strategic ties with Asia.
Plant and machinery exports to Russia fell 28 per cent in the first quarter from a year earlier, as companies struggled to secure trade financing amid strained relations between Russia and the West, German industry association VDMA said.
“The downtrend in engineering exports accelerated at the start of the year and it’s quite conceivable that engineering exports to Russia could drop by 30 per cent this year,” said Ulrich Ackermann, VDMA’s head of foreign trade.
The Russian economy has been hit hard by Western sanctions over the conflict in Ukraine and a rapid drop in oil prices, the country’s key export.
The Russian Economy Ministry said this week gross domestic product contracted 4.2 per cent in April, compared with a year earlier, after shrinking 2.7 per cent in March. In the first four months of the year, the economy contracted 2.4 per cent. The data showed a drop in foreign trade also put pressure on the economy.
The World Bank said it saw the Russian economy shrinking 2.7 per cent this year before growing 0.7 per cent next year and 2.5 per cent in 2017.
China is increasingly capitalising on Russia’s disengagement from the West.
Mr Ackermann said “it’s only a matter of time until China will replace Germany as the most important supplier of machinery and equipment to Russian industry.”
Researchers at Oxford Economics said there was a 60 per cent chance of economic sanctions on Russia remaining in place throughout 2016.
“Despite the ceasefire, we believe fighting in eastern Ukraine will continue to flare up on a regular basis, following the existing pattern of waves of escalations and ceasefires,” they said.
Total German exports to Russia declined 18 per cent last year to €29 billion ($41bn) while imports dropped 7 per cent to €38bn, according to the federal statistics office.
Weakening trade with Russian is further undermining industrial production in Europe’s largest economy, which is struggling to maintain momentum amid weak corporate investment and unsteady global demand.
“Germany’s manufacturing upturn appears to be losing its legs again,” said Oliver Kolodseike, economist at Markit, following a weaker than expected German purchasing managers’ survey this week.
Germany’s manufacturing PMI index fell to 51.1 in May from 52.1 in April, signalling softer growth. Index readings above 50 imply expansion.
Total orders for Germany’s plant and machinery industry, including tickets from Russia, fell 2 per cent in April from a year earlier, VDMA said.
Domestic orders fell 3 per cent, but there was an opposing trend in demand from inside and outside the eurozone.