2026 Forecast: Opportunity Markets for Hydraulics and Pneumatics

The fluid power industry and its various customer segments experienced challenging market conditions in 2024, and 2025 has so far not proved to be much better.

High interest rates and inventory levels, uncertainty about the global economy and tariffs are some of the top reasons cited for weaker demand in the fluid power industry and many of the customer markets it serves. While 2025 started on a more positive note for some sectors, such as metalworking and other industrial machinery applications, ongoing inflation and uncertainty related to tariffs has kept demand low for many sectors.

Heading into 2026, projections presented by various economists during the National Fluid Power Association’s (NFPA) Industry & Economic Outlook Conference (IEOC) were mixed — some noted there are signs of recovery showing in a few markets, including fluid power, while others see recovery coming later in 2026 or even 2027.

Data Centers

Hazelton also noted during his presentation that non-residential construction spending remains low other than for healthcare and data centers. Rising use of artificial intelligence (AI) and other digital technologies requiring complex computation and data processing has prompted a boom in data center construction.

In early 2025, EndeavorB2B partner site Data Center Frontier spoke with Doug Adams, President and CEO of Global Data Centers for NTT DATA who said the data center industry has been growing at a compound annual growth rate (CAGR) of about 13.5%, and further growth is anticipated in the coming years.

During his presentation on the global construction equipment market, Alastair Hayfield of Interact Analysis said the U.S. is building as many offices as it is data centers. This could help lead to increased demand for the construction equipment required to build these facilities — as well as the hydraulic, pneumatic and other components which enable these machines to function.

Hayfield noted that data centers, unlike many office buildings, have a larger physical footprint and are typically located outside of urban areas. Supporting infrastructure such as roads and water access are required as well, all of which necessitates the use of various types of construction machinery to build, particularly large earthworking machines.

Fluid power components are used in data centers as well, further aiding opportunities for the industry in this burgeoning market. Hoses, fittings, pumps and a range of other fluid conveyance related componentry are an important part of the liquid cooling systems utilized in many data centers.

Learn more about the use of fluid power technology in data centers in the article “Hydraulics and Pneumatics Play Important Role in Data Center Cooling.”

Cooling systems are a necessary part of every data center, helping to prevent overheating of the chips housed in them which are used for all of the data processing that takes place at these facilities. As construction of data centers continues to grow so too will the need for the fluid power components used within them.

Defense

Nico Palesch from Oxford Economics said during his IEOC presentation that defense spending will be a big growth driver over the next few years, particularly in Europe. He noted that NATO (North Atlantic Treaty Organization) and several European countries have announced increased spending on defense in the coming years.

While S&P’s Hazelton said it is uncertain where the defense spending will be targeted, Palesch expects much of it will be on equipment as countries look to upgrade their older military vehicles, airplanes and other technology. He said the increased defense spending is likely to trickle into other sectors such as aerospace — and thus could help the projected growth for that industry in the coming years — precision and optical instruments, shipbuilding, metal products and others.

Hydraulics and pneumatics companies which either directly serve the defense industry or other related sectors are thus likely to benefit from the projected increase in spending by this industry.

Palesch anticipates much of the spending will be kept within Europe and help boost the region’s industrial economy but expects the U.S. defense industry to benefit as well.

Food Processing

The U.S. food processing industry should remain relatively healthy according to Hazelton, with growth expected in this sector over the next few years.

Coming out of the COVID-19 pandemic, the industry experienced some challenges as restaurants began to recover. But with the current economic climate which is causing uncertainty for many consumers, the food processing industry is returning to a growth trajectory.

Hazelton noted that weaker consumer confidence leads to people eating at home more, driving up retail sales for various food products. Although imported goods such as fresh produce and meats are impacted by tariffs, the majority of food processing is done domestically and therefore not subject to price increases due to tariffs.

Pneumatics in particular are commonly used by this sector to both produce and package foods, and its future growth potential should benefit those fluid power companies working in this space.

Pharmaceuticals

Another sector expected to see growth in 2026 and beyond is pharmaceuticals. Palesh said U.S. sectors that will continue to do well in the current economic climate are those already doing well and which have an established production footprint in the region such as pharmaceuticals.

Hazelton said U.S. pharmaceutical production will accelerate and shipments were already up 8% in the first half of 2025. While the industry is dealing with tariffs on imported ingredients and equipment, he said a number of companies have also announced investments in domestic production.

If these investments come to fruition, they will aid the projected growth for the sector as well as the industries which serve it like fluid power.

Semiconductors

Semiconductors are expected to be another opportunity area for the fluid power industry in the coming years. The CHIPS and Science Act provided funding for the building of domestic production facilities for semiconductor chips which are used in a vast number of applications today.