At the annual MTA Forecast Seminar yesterday, delegates were taken on a whistle stop tour of the prospects for the global economy before focusing firstly on the general industrial picture and then on the forecasts for the manufacturing technology sector.
At the macro level, it looks like the worst is over with global GDP growth set to pick up modestly as we move into 2026. The main focus was on the US economy where tariff-induced uncertainty is balanced against the AI boom that is occurring there. The UK has a couple of specific risks, most notably how the financial markets react to the budget at the end of November.
For the industrial sector globally, most sentiment is negative at the moment, although the presentation suggested that things are not as bad as they seem and there are variations between both countries and sectors which, as always, make generalisations misleading.
Finally, the forecasts for the UK machine tool market in 2025 have been downgraded to a decline of -10½% but we expect a return to modest growth next year; however, even with a similar pace of improvement in 2027, this will not be enough to get back to the 2024 level. For cutting tools, the market was broadly flat in 2024 and a similar outcome is predicted for 2025 before a small improvement next year that then accelerates slightly into 2027.
Members can get all the details of our new forecasts and the presentations from the seminar by downloading the files from the Members Area of the MTA website at https://www.mta.org.uk/members-area/market-intelligence.
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The first presentation by Ben May, Director of Global Macro Research at Oxford Economics, covered the macro-economic situation in a world caught in the cross current of policy. Their global GDP forecast suggests that the 3rd quarter of 2025 – which has closed but for which there is only minimal data at this stage – will prove to be the low point, with a modest improvement to follow, especially as we move into 2026.
He also suggested that there is no clear message from the data, with a wide variation in sentiment, providing ammunition for both optimists and pessimists. This is, perhaps, best illustrated by the unusual situation of strong equity markets at the same time as a high value of gold.
Oxford Economics are optimistic about the prospects for the US economy, although the robust outlook is centred on consumers and the AI boom and comes despite the impact of US tariffs where the impact is mainly on the heavy engineering end of the industrial spectrum. The risk of recession is low, despite several possible triggers.
In Europe, fiscal support is being delayed, with Germany proving slower than had been expected to ramp up spending on defence and infrastructure. The prospects for the UK remain sluggish, with fiscal policy being tightened significantly over the next three years and investment limited by weak profitability and fragile confidence.
All this is occurring while the structural slowdown in China continues. Excess supply in China seems set to worsen, but substitution and rerouting are making the impacts of US tariffs harder to see.
After looking at the global impacts of tariffs, the presentation looked at the impact of the AI boom that is, for now at least, concentrated mainly in the US. Rising equity values is providing a powerful boost to wealthy consumers, while the high import content has boosted activity in Asia, most notably Taiwan. This could continue for some time and would add further strength to the US economy, but there is also a risk of a boom-bust cycle if the optimism over the sector fades.
The final section covered policy changes. The pace of cuts to interest rates looks limited, except perhaps in the US which may be past its pause period. The wildcard is fiscal policy which has kept many economies, especially the UK and Euro-zone, from stagnating over the past couple of years.
In conclusion, while global growth will be modest next year, a recession should be avoided, with the US noticeably ahead of most advanced economies. The US and Chinese economies are increasingly moving apart with the Ai boom boosting the former while the latter struggles to re-balance their economy away from investment and towards consumers. Interest rates cuts will only provide limited support and the big unknown is the future path of fiscal policy.
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The second session was led by Jeremy Leonard, Managing Director of Global Industry Services at Oxford Economics (OE), who focused on the global industrial outlook; his theme was that while not brilliant, things might not be as bad as they seem.
Market conditions for European industry have improved, with the recovery expected to continue through 2026 despite headwinds in some sectors – the UK also faces fiscal challenges that will weigh on our recovery. He pointed out that while the US market is important, European manufacturers need to focus on their home market which is a much larger proportion of total demand.
Heavy manufacturing, where most of the customers for machine tools and cutting tools are concentrated is a very cyclical business that is always more volatile than trends for the economy as a whole. Using the Oxford Economics Industrial Production Cycle (which we highlight in the Friday Brief each month), he noted that industry was on a road to recovery before the “Liberation Day” announcements at the start of April.
However, despite the US tariffs and the uncertainty that they generate, Europe is improving; this has to be caveated by noting that it started from a low point and the pace of recovery was a long way from being a boom situation. The US market accounts for no more than 10% of exports from most European countries – the UK is the exception here at just over 15% – and even by industry, the maximum share of exports to the US in total production is only 20% seen for the aerospace industry and much lower for other important sectors.
There is also a range of impacts of the US tariffs between the industrial sectors, even among those of most importance to MTA members. The automotive and mechanical engineering industries are at the top of the list, with a lower impact for aerospace and metal products. It was also noted that the uncertainty from tariffs is harmful, regardless of the impact of the actual levels.
China is discovering the limits of export-led growth, with the reduction in shipments to the US being replaced by increases to other countries, most notably in the ASEAN region. Their penetration of European machine tool markets is small but variable.
The latest industrial forecasts from OE show a return to growth in most markets in 2025 following declines (or minimal growth) in most advanced economies over the past couple of years. This improvement decelerates in 2026 as the impact of US tariffs are reflected in activity, before improving again in 2027.
Consumer spending in Europe is resilient and generally improving but there are few signs of a turn in the CapEx cycle and uncertainty will take its toll on business investment. For the UK, the Bank of England will continue to ease policy but long-term interest rates, which are more important for commercial borrowing, remain high.
Despite tariff concerns, European automotive demand has held up well, although there is a shift away from conventional power sources which is balanced by increased demand for hybrid vehicles. The key question here is how governments will adapt policy which is currently focused on electric only vehicles.
Air passenger growth remains strong, even four years after the pandemic but there is scope for increases in defence spending to provide a boost to industrial output – the key question for this is around timing. Aerospace is set to be the biggest beneficiary of this rise in spending, with precision instruments also seeing a boost. Another positive sector comes through the need to increase power supplies to meet the demand from data centres and to adapt power sources driven by Net Zero commitments.
Overall, 2026 will be a tough year for industry globally, but with some bright spots. The UK has a similar picture, with the automotive industry leading the growth, albeit for one-off reasons (including the base effect of the JLR closure in 2025).
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The final session took this background and highlighted the ways in which this drives our forecasts for the UK machine tool and cutting tool markets, as well as a look at the new edition of the Global Machine Tool Report. It was also noted that although it does not specifically cover tooling, the global report does contain forecasts for output by sector and country which will be of value to members in this part of our industry.
We covered the headlines for the UK market in the introduction above but it is worth noting that although the pace of growth expected for 2026 is broadly unchanged, this is starting from a lower level than in either of our two previous forecasts.
It is clear that an increase in uncertainty lies behind the downturn in the market, especially for machinery which is driven by investment. While the overall data on investment spending has held up reasonably well in the first half of the year – note that this track when the purchase is paid for – intentions data is more negative. Indeed, data released during the seminar shows a significant deterioration in expectations for manufacturing investment. Similarly, while capacity utilisation has improved, it is still at a relatively low level and the latest data suggests it may be easing further.
Perhaps the clearest indication of the uncertainty comes from the PMI survey. This has it critics, especially in what it actually measures, but in noting that the UK reading has taken a negative turn over the summer, culminating in the lowest reading globally in September, it was observed that this was largely driven by weaker orders.
The UK also faces risks around the forthcoming budget; in particular, if the markets react unfavourably, perhaps by assessing that the measures are not consistent with the government’s own fiscal rules, there is a significant downside risk to the forecasts across the whole economy which will affect machine tool demand.
For the cutting tool market, although the forecasts for 2025 are more neutral than in the Spring forecast round, this comes at the expense of a weaker picture for 2026, with the exception of the automotive industry which we have already noted. One important point is around defence spending where positive headlines are often based on large numbers announced by governments. However, this generates a number of questions:
- Timescale – these are often multi-year announcements which look more modest on an annual basis and can often by biased towards the end of that period.
- Where will the money be spent and on what – initial purchases are likely to go to countries with well-established manufacturing sectors while domestic capabilities are built up.
- This suggests that the impact for investment in machines tools will come early in the cycle and often before significant increases in government spending are seen in published data.
For the Global Machine Tool Forecast report, we started with a reminder that aggregates for the world or regions can be affected by changes in exchange rates and that inflation can also be a part of any growth seen in the data which is published in nominal (or cash) terms.
Overall, the global machine tool market, expressed in US$ terms, is expected to grow by +6.5% in 2025, with Asia providing most of this increase – the European machine tool market is still contracting this year. This is expected to slow to growth of +2.3% in 2026 as Asia slows and the US contracts slightly, but Europe returns (just) to growth in demand. Further out, the pace of growth globally picks up again but, notably, Asia has the slowest growth and demand is led by Europe in 2027.
This pick up in Europe is, inevitably, led by Germany as spending on defence and infrastructure is expected to kick-in in the latter half of 2026. The Italian market returns to growth in 2025 following a particularly weak outcome last year but we don’t see any significant improvements in most of the other European countries until next year.
The growth in Asia is, of course, led by China which is by far the largest machine tool market in the world. Growth in India is also relatively strong in 2025 and it is the slowing of the pace in these two markets over the next couple of years that means that the region as a whole see slower growth that is overtaken by improvements elsewhere.
The US market has been showing signs of improvement recently – machine tool orders are up by +14% in the first half of this year – but the drag from higher tariffs and the ongoing uncertainty will limit growth.
The global machine tool forecast is tested against two scenarios. Compared to the baseline forecast for growth in global machine tool demand of +5.0%in 2025 and +2.1% in 2026. These scenarios show:
- Worst-case trade war – based on most current agreements collapsing, higher tariffs both in the US and around the world by retaliation, while 2025 is relatively unaffected with growth still at +4.8%, there is a fall of -2.4% next year and growth is also weaker in 2027 than in the baseline.
- Reduced policy uncertainty – this is the upside scenario which sees a reduction in policy changes, although not necessarily the actual level of tariffs (these are always much harder to remove than to put in place) and investment improves compared to the baseline; under this scenario, global machine tool demand grows by +5.1% in 2025 and +4.7% in 2026, although the pace then flattens off at around this rate.
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You can download the latest forecast documents – the MTA Forecast Report for the UK market for machine tools and cutting tools and the Global Machine Tool Forecast and its associated tables – and the presentations from the Seminar from the members area of the MTA website at https://www.mta.org.uk/members-area/market-intelligence. While we have added notes to the Manufacturing Technology presentation, the two from our colleagues at Oxford Economics are only the bare slides at this stage but we will be adding speaking notes to this and will let you know when these are available.