Better year for the European construction equipment than expected

2019 turned out to be a better year for the European construction equipment sector than initially expected. While some small single-digit declines in sales had been anticipated across the industry, total sales in Europe grew by 3.4% compared with the previous year. However, the slowing momentum of sales during the year was in line with expectations. After a 7.1% sales increase in Q1, and 6.5% growth in the second quarter, when the world’s leading exhibition bauma boosted sales, the market turned down and sales declined by 0.1% and 2.5%, respectively, in the third and fourth quarters. In 2019, the European market reached a new high after the economic crisis of 2008/09, but still lags behind the volumes of the peak year in 2007.

Advertisement

Most markets in Western and Northern Europe that were already at very high levels of absolute sales experienced a stable market in 2019, or in some cases, modest growth in sales. Markets in Southern and Central and Eastern European mostly recorded growth in sales, but did not meet the optimistic levels expected. Once again, the Turkish market was the exception in 2019, with sales in “free fall”, following a poor market in 2018.

EARTHMOVING EQUIPMENT

Sales of earthmoving equipment in Europe (including Russia and Turkey) grew by another 5 % in 2019, at what appears to be the end of a growth cycle. The market is at its highest post-crisis level, but sales are still 12% below the 2007 peak. However, there are some significant regional differences in sales within the sector.

While some countries have reached levels of sales up to 30% above the precrisis peak, there are also examples of markets that are still more than 50% below peak levels. The gap between these groups of markets has not narrowed significantly, and it remains to be seen as to whether this position will change.

2019 saw steady growth in sales across all quarters. Q1 started with 5.4% growth in sales compared with the previous year, slowing slightly in Q2 to 3.9%. In Q3, growth picked up again at 6.5%, and finally, in the last quarter saw some moderation to 4.1%. Machine supply constraints and failure to meet delivery times held back some growth in sales in 2018, but were not an issue in 2019.

As a result, it looks like sales in 2019 benefitted from this carry-over of sales into the following year. As expected, the introduction of the EU Stage V emissions standard did not have any major impact on the market in 2019.

The biggest market Germany surpassed all expectations and grew by another 10% in 2019. This represented the fourth consecutive year of significant growth, and took the German earthmoving market to a remarkable 24% above the peak levels of sales seen in 2007. The modest 2.4% decline in sales in the UK, ranked second in Europe, was probably a combination of an expected cyclical downturn, as well as uncertainty due to Brexit. Europe’s third-largest market France recorded solid growth in sales of 8%. The Nordic markets seem to have peaked, and remained unchanged compared with 2018, at very high absolute levels of sales. The same can be said for Austria and Switzerland, a market that showed a small 1% decline in 2019. The Benelux markets recorded another 8% growth in sales, rounding off a very positive year for the earthmoving equipment sector in Western Europe.

Southern Europe continued to recover in 2019 and recorded a 10% increase in sales, taking the total sales volume for the region to a similar level as the French market. Italy, the fourth largest market in Europe, made a significant contribution to this, growing by 13%. In contrast, the Spanish market (+2%) fell short of expected growth levels in 2019, and remains 70% below the 2007 peak levels. Central and Eastern European markets grew at above average levels again, and saw a 13% increase in sales. This region consists of a mix of large and small markets, which experienced a range of different fortunes in 2019. The largest market Poland only grew by 4%, while the strongest growth was seen in the Czech Republic, Slovakia, and Hungary. The Russian market saw sales grow by another 12%, while Turkey declined significantly by 58%, having been at low levels of sales to begin with. The only positive feature in the Turkish market was that sales in the last quarter in 2019 were above those of a very poor Q4 2018.

Similar to 2018, the patterns of growth across the product lines within the earthmoving segment were very similar, with both compact and heavy machinery seeing sales grow by 5% in 2019. The largest sub segment, crawler excavators, experienced a 4% sales increase. Sales of compact wheel loaders grew by 13%, supported by the strong German market which is always the biggest user of these types of machines. On the heavy equipment side, sales of crawler excavators were flat, and both wheeled excavators and wheeled loaders saw a 4% increase in sales.

ROAD EQUIPMENT

Sales of road equipment in the European market grew modestly by 2% in 2019. The pattern of sales growth during the year was in line with expectations, given the late stage of the economic cycle in this sector. After 9% growth in the first quarter, sales accelerated in the second quarter to reach 12%, probably due mostly to the boost in sales resulting from the bauma  exhibition in April. Following this, the second half of the year saw a clear downward trend, with Q3 sales at 7% below the previous year’s, and Q4 showing a reduction of 12% compared with the last quarter in 2018. Despite the poor ending to the year, the overall position within the sector is not a cause for concern. This is because, when comparisons are made, it should be borne in mind that the last quarter of 2018 saw very strong growth in sales. In summary, the absolute level of road machinery sales in 2019 was very high.

Similar to the earthmoving sector, a remarkable feature of sales in 2019 was the 10% increase in Germany, which was already at very high levels following growth in earlier years. However, one caveat to these statistics is the anecdotal evidence that suggests that a substantial number of almost-new, unused machines were transferred out of Germany and exported to North America and other regions (taking advantage of arbitrage and currency opportunities). Statistics are not available to quantify this effect, but it appears to have been a relevant factor on the level of sales recorded during the year. The other major markets in Europe were less dynamic in 2019. France, which ranks as number two in Europe, saw a modest 2% increase in sales, and the UK market only grew by 1%.

The Nordic markets saw growth in sales come to an end in 2019, as sales fell by 6%, after showing very strong growth in earlier years. The Benelux markets saw a modest increase of 2% in 2019, while Austria and Switzerland saw sales decline by 11%. What should be borne in mind is that sales in these two markets were very strong in 2018. A 4% increase in sales in Southern Europe did not meet the expectations for a region that was supposed to catch up with Western and Northern European markets. However, on a more positive note, CEE markets showed solid growth in sales of 10%. Similar to the earthmoving sector, the Turkish market saw another disastrous year, with sales falling by 65%. The only positive takeaway is that the worst appears to be over now in this market.

Across the product segments there were small differences in the pattern of sales in 2019. Light compaction equipment grew by slightly more than 2%, while heavy compaction equipment saw sales fall by 1%. Sales of vibratory plates grew by 3%, and the market for tampers was almost unchanged at 1% growth. Tandem rollers saw sales decline by 3%, while single-drum rollers grew by 3%. Asphalt pavers saw sales decline by almost a fifth in 2019, but this followed an exceptionally strong 2018.

CONCRETE EQUIPMENT

As expected, growth in sales of concrete machinery came to an end in 2019, after four consecutive years of growth, culminating in a very strong 17% increase in 2018. However, against the backdrop of steady growth in the residential and nonresidential building construction sub-sectors, only a small downturn in sales was anticipated. With a moderate 6% decline in concrete machinery sales in 2019, the result was along the lines expected in the European market. Growth was only seen in the first quarter (+5%), and was followed by a 9% decline in Q2, and 11% and 8% reductions in Q3 and Q4, respectively. The trend of this market becoming less volatile in recent years continued in 2019.

The two biggest volume markets in Europe both saw substantial declines in 2019, with France falling by 12%, and Germany by 7%, but both still remain the largest markets. Western European remained stable overall with Austria and Switzerland, and the UK all recording unchanged levels of sales in 2019. In contrast, the Benelux markets recorded growth in sales of 20%, while the Nordic markets saw sales decline by approximately 20%. The growth in Southern European markets came to a halt, with sales recording a modest 4% fall.

This was primarily due to a poor market in Spain. CEE markets continued their recovery and saw sales grow by 9%. Only Poland, the largest of the CEE markets, was disappointing, showing a 15% reduction in sales in 2019. The Russian market saw an interruption to the growth path of sales, and registered a decline of 30%, however this was partly due to a statistical base effect. Across the different concrete machinery products, sales of truck mixers showed the biggest decline, with sales in Europe down by 7% in 2019. The market for

mixer systems only experienced a small decline of 1.5%, and sales of batching plants decreased by 1.7%. The concrete pumps business and concrete vibration equipment (no detailed data available) reported a positive market in 2019.

TOWER CRANES

Tower cranes are the other major building construction equipment sub-sector within CECE scope, and similar to concrete equipment, saw sales in Europe decline by 6% in 2019. This was primarily due to a weak fourth quarter, when sales dropped by 19%. After the first three quarters of the year, sales were flat compared with the previous year, including a 4% increase in Q2, helped by bauma. Overall, tower cranes remain the most volatile equipment segment, which is largely due to the low level of absolute sales volumes compared with other equipment types.

The largest European market France saw a significant decline in sales of 20%, which is more due to a comparison with exceptionally strong sales in 2018, than a market collapse. Germany saw an increase in sales of 8% in 2019, but market volumes are still well below the market in France. These two countries still account for more than 50% of the total tower crane market in Europe. The UK is ranked as number three in Europe, and recorded a 5% growth in sales.

Many of the other major markets saw similar prospects in 2019. Belgium experienced a 25% decline, the Austrian saw sales fall by 20% and the Swiss market recorded a 12% drop. In contrast, the Southern European market grew by 20%, despite a modest decline in sales of 4% in Italy. The Nordic markets recorded a 15% sales increase. The CEE markets did not live up to expectations and saw a relatively flat year compared with 2018. Sales in Russia more than doubled, but from very low levels in 2018. The Turkish market declined to a point where it almost disappeared.

SUMMARY AND OUTLOOK

It had been expected that 2019 would be the turning point year after a sustained period of growth in equipment sales for

a number of years. This was the outcome in 2019, but after a positive first half year, sales still ended up 3.4% above 2018 levels. This means that sales in Europe outperformed a flat world market. Sales around the world provided two groupings with similar experiences. North America, Latin America and China all experienced single-digit growth. While in contrast, Africa, the Middle East, Oceania, India, and Southeast Asia all suffered reductions in sales, with some at double-digit levels.

The outlook for the world market in 2020 remains mixed. There are a number of positive indicators like recovering commodity prices which support mining activity, and a positive investment climate thanks to low interest rates. This is complemented by growth forecasts for the construction industry in many regions, and stability developing in many markets that were previously uncertain, such as Brazil and India. However, risks and uncertainties remain significant around the world. The Covid outbreak is having an impact on business in China and Asia in the first half of the year, and could also have strong negative effects around the rest of the world.

Trade tariffs damaged the industry last year – not only indirectly as a result of the US-China trade war, but also directly in the form of duties imposed by the USA on German and UK-produced excavators and light equipment, as retaliation following the WTO ruling on the Airbus case. Trade

barriers still have significant potential to further disrupt trade and market sales, with no party likely to be on the winning side in the long run. This includes Europe, where even though uncertainties about Brexit are over, trade relations between the EU and the UK still have to be negotiated, and it remains unclear as to whether there will be a business-friendly solution.

In an environment with many uncertainties, reliable forecasts for the world and the European market are very difficult to make. Taking on board levels of underlying equipment demand and the current status of economic cycles, a 10% decline in global sales and a 5% decline in the European market in 2020 are realistic scenarios. 

However, the impact of prolonged business inactivity due to the Coronavirus pandemic could be immense, and could pulverize all of these forecasts. CECE Business Barometer, the most relevant leading indicator for the European construction equipment sector, confirms these concerns: In the March 2020 survey, future business expectations recorded the sharpest drop ever in the history of that survey, and it must be expected that the worst is still to come for the sector.