New orders for machine tools fell 8% year-over-year during the first quarter of 2015 for Germany’s manufacturers, with demand from domestic customers showing particular weakness, while export orders also declined less markedly. The results were reported by VDW, the German Machine Tool Builders’ Association, one of the largest machine-tool building industries in the world (17.7% global market share, ranking third behind Japan and China), and one of the largest manufacturing sectors for the German economy.

The latest report appears to reverse the positive trend that the group reported in its previous quarterly statement. VDW found that German manufacturers’ orders fell by 19% during Q1 2015, while orders from abroad shrank by 2%.

The German Machine Tool Builders’ results stand in contrast to the recent Q1 report by the Italian machine tool builders’ association, who have recorded sixth consecutive quarters of expansion.

The U.S. machine tool industry also is off to a slow start in 2015, down 9.8% year-over-year for the first two months.

“Compared to a strong first quarter in 2014, demand for machine tools is currently taking a breather,” observed VDW executive director Dr. Wilfried Schäfer. He said the falling order volume is mainly the result of weak domestic demand, which are in sharp contrast to a very solid period in the early part of last year.

However, Schäfer also noted that demand improved during March 2015, compared to January and February. “The German economy is trending upwards, as the latest IFO Business Climate Index makes clear, the executive director said. “Due to the weak euro and the low raw material prices, we anticipate that domestic demand from our high-export-ratio customer sectors, too, will gather momentum in the months ahead.”

Export orders rose by 6% during March, in particular from other EU countries, the very markets where Q1 2015 demand for machine tools has been strongest (up 26%, year over year.) The continuing increase in demand since Q3 2014 confirms a high level of confidence by European manufacturers, a detail that is confirmed by the Purchasing Manager Index, according to VDW.

VDW further noted that the overall drop in export orders during Q1 2015 is an effect of “tentative” Asian demand, though recent activity in China suggests improving conditions.

The trade group noted that Chinese government industrial policies emphasize the importance of product quality, as a spur to more globally competitive Chinese manufactured goods. That objective will require new, “state-of-the-art production technology,” according to VDW.

“For this technological transformation, China is increasingly prioritising quality before quantity. This trend will also benefit the German machine tool manufacturers with their high-tech products. This can be substantiated not least by noting that since the second half of 2014 orders from China are again starting to show a significant increase,” Schäfer said.

Schäfer also said the U.S. market offers potential for VDW members: “Following a strong preceding year, it’s above all the favorable euro-to-dollar exchange rate that in the months ahead can be expected to boost business with the U.S.A.”