Machinery & Equipment

Approaching a cyclical inflection point

MEDIUM RISK FOR ENTERPRISES

Last Update: July 2026

Strengths & Weaknesses

High barriers to entry: Significant capital investment, engineering expertise, proprietary technology and extensive service networks create substantial barriers for new entrants.
Robust long-term growth potential: Structural trends – including industrial automation, robotics, artificial intelligence (AI), electrification and digital manufacturing – continue to support long-term demand for advanced machinery and equipment.
Pricing power through technological differentiation: Companies with innovative, high-performance or mission-critical solutions are generally able to command premium pricing and maintain resilient margins.
Diversified revenue streams: The sector serves a broad range of industries, geographies and end markets, reducing dependence on any single customer segment or economic cycle.
Strategic role in industrial digitalization: Machinery and equipment manufacturers increasingly enable customers' digital transformation through connected equipment, industrial software, data analytics and AI-enabled solutions, strengthening long-term customer relationships.
Growing recurring revenue from services: After-sales services – including maintenance, spare parts, upgrades, retrofits, software and predictive maintenance solutions – provide recurring revenue streams, enhance customer retention and support margin resilience.

High cyclical exposure: Demand is closely tied to industrial activity, capital expenditure and business confidence.
Complex global supply chains: Dependence on international suppliers increases exposure to geopolitical risks, trade restrictions and component shortages.
High capital intensity: Significant investments in manufacturing capacity, technology and R&D are required to maintain competitiveness.
Raw material price volatility: Profitability is sensitive to fluctuations in the prices of key industrial inputs, including steel, aluminum, copper and nickel.
Long sales and delivery cycles: Extended procurement and project timelines can delay revenue generation and reduce operational flexibility.
Regulatory burden: Stringent environmental, safety and cybersecurity requirements increase compliance costs and complexity.
Rapid technological change: Continuous innovation is essential to keep pace with advances in automation, AI and digitalization, while legacy assets risk becoming obsolete.

Sector Overview

What to watch ?

Global economic outlook: Macroeconomic conditions continue to weaken. Following a modest growth of just +2.9% in 2024 and +3.0% in 2025, global GDP growth is projected to remain sluggish at around +2.5% in 2026 and +2.9% in 2027. This prolonged slow recovery and the persistent macroeconomic uncertainty could constrain sector growth in the near term, particularly given its high sensitivity to economic cycles.
Industrial policy and manufacturing investment: Governments across major economies are ramping up industrial policies, continuing to promote domestic manufacturing, strategic industries and supply-chain resilience through subsidies, incentives and infrastructure investment, reshaping competitive dynamics and capital allocation.
Business confidence and manufacturing activity: Key leading indicators such as business confidence and Purchasing Managers’ Indexes (PMIs) serve as vital barometers for sector health. Over the first half of 2026, these indicators have remained relatively flat, with no clear signs of improvement. Business sentiment has generally been most pessimistic in Europe, while the US has shown weaker but comparatively more resilient sentiment and Asia has presented a more mixed picture.
Geopolitical fragmentation and trade policies: Tariff uncertainty, export controls and regionalization of supply chains continue to influence sourcing strategies, production footprints and market access.
Raw material and input cost volatility: Prices for industrial metals, energy and other key inputs remain volatile, while persistent regional cost disparities are affecting global competitiveness. These dynamics may continue to pressure manufacturers’ cost structures, pricing strategies and margins.
Supply-chain resilience: Rather than maximizing efficiency alone, manufacturers are increasingly prioritizing supply-chain diversification, regionalization and resilience to mitigate geopolitical and operational risks.
Interest rates and financing conditions: The pace of monetary easing will remain a key driver of capital investment as financing costs directly influence customers' willingness to invest in new equipment.
AI and industrial digitalization: The adoption of AI, advanced automation, connected equipment and industrial software is accelerating, creating opportunities for productivity gains, new service offerings and product differentiation.
Sustainability and energy transition: Tightening environmental regulations, decarbonization targets and increasing demand for energy-efficient equipment continue to drive innovation while raising compliance and investment requirements.

The global machinery & equipment sector is valued at approximately USD820bn in 2026. Asia-Pacific remains the largest regional market, supported by China and India's industrial expansion, while North America and Europe continue to lead in technological innovation, high-value equipment, and installed industrial capacity.

As of 2026, the sector is entering the early stages of a recovery following a prolonged period of cyclical weakness. Following two years of subdued order activity, the global machinery & equipment sector is showing early signs of recovery. During 2024 and 2025, new orders weakened as higher interest rates, softer industrial activity and geopolitical uncertainty delayed capital expenditure decisions. Manufacturers were able to maintain production by working through elevated backlogs accumulated during the post-pandemic recovery (2021–2022), leading to a gradual normalization of order books. As inventories rebalance and investment conditions improve, demand is expected to gradually recover in 2027, supported by infrastructure spending, automation, AI-related investment and industrial digitalization. Indeed, throughout the first half of 2026, order intake has started to improve in some sub-sectors, given increasing investment in power infrastructure, data centers, industrial automation and reshoring initiatives. Although demand remains uneven across end markets, the sector appears to have reached a cyclical inflection point.

Production trends reflect a similar pattern. Following the strong post-pandemic rebound, global machinery output moderated significantly during 2024 and flattened in 2025 as customers delayed investment decisions and manufacturers reduced elevated inventories. Entering the second half of 2026, production is gradually recovering as capacity utilization improves and replacement demand strengthens. Construction machinery and heavy-duty trucks are expected to lead the recovery, benefiting from infrastructure spending, expanding power generation and data center investments, healthier freight markets and improving dealer inventories. By contrast, agricultural machinery is likely to remain the weakest major end market in the near term, with subdued farm economics and export uncertainty continuing to constrain equipment investment despite signs that the cycle is approaching its trough.

Regionally, North America continues to outperform most other markets, supported by infrastructure investment, manufacturing reshoring and robust demand for power generation and digital infrastructure. Europe should be timidly recovering after a prolonged period of weak industrial activity, helped by easing inflation, lower financing costs and improving business confidence, although activity remains below the post-pandemic highs. Asia-Pacific continues to benefit from long-term industrialization, automation and infrastructure investment, with China and India remaining key drivers of equipment demand.

Although geographically uneven, the global macroeconomic environment should also become increasingly supportive for the sector. Global GDP is projected to expand by +2.9% in 2027 (after a temporary slowdown in 2026), providing a more favorable backdrop for industrial investment and machinery demand. Regional dynamics remain mixed: The US economy is expected to remain resilient, growing by around +2.0–2.1% in 2026, while Europe faces the slowest recovery (+0.9% in 2026; +1.2% in 2027). China remains a key growth engine, supported by exports, high-tech manufacturing and strategic industrial investment.

Subsectors

The machinery & equipment sector includes the following sub-sectors: construction machinery, agricultural & farm machinery, industrial machinery and equipment, mining equipment and robotics.

Contacts

Maria Latorre

Sector Advisor

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