Transcript The Economy – Implications for Manufacturing

The outlook for the UK economy and
manufacturing in an uncertain world
Lee Hopley
EEF Chief Economist
24 April 2012
OVERVIEW
• UK economy has seen some significant growth
challenges
• Strong manufacturing activity has boosted the economy
through the recovery so far ..
• ..but no sign that risks and challenges will abate.
• Manufacturers still in pursuit of new opportunities
• There are still some cautious signs of optimism that
industry will continue to grow this year.
• … but what about the rest of the economy?
THE STORY SO FAR….
Generating UK growth proving a
challenge, but not all sectors are equal
Growth, rebalancing …neither?
Contributions to UK GDP growth
2.0
%
Households
Government
Inventories
Investment
Trade
GDP
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
2011q1
2011q2
2011q3
2011q4
Source: National Statistics
International risks have had an impact,
% annual GDP growth in 2012
Jan-11
10
Jan-12
• Downgrades across the board.
• Eurozone crisis abated for now, but
still presents significant downside
risk.
8
6
• Contraction across the bloc in
2011q4…and in 2012q1.
4
• But confidence indicators in
Germany have picked up a bit.
2
0
• The US had a stronger 2011h2 –
manufacturing doing particularly
well.
U
S
Ja
pa
n
C
hi
na
In
di
a
B
ra
z
R il
u
Eu s s
ro ia
zo
ne
W
or
ld
-2
• But emerging markets will lead the
pack again in 2012.
Source: Oxford Economics
And manufacturing output hit in 2011q4,
index of production 2008=100
106
103
25/4/12 – GDP day!
100
97
94
?
91
88
q1
20
12
q3
20
11
q1
20
11
q3
20
10
q1
20
10
q3
20
09
q1
20
09
q3
20
08
q1
20
08
q3
20
07
20
07
q1
85
Source: National Statistics
But 2012q2 gets off to a better start,
% balance of change in past three months
Output
%
Orders
Export orders
40
20
0
-20
-40
q
20 3
06
q
20 1
06
q
20 3
07
q
20 1
07
q
20 3
08
q
20 1
08
q3
20
09
q
20 1
09
q
20 3
10
q
20 1
10
q
20 3
11
q
20 1
11
q
20 3
12
q1
20
05
20
05
q1
-60
Source: EEF Business Trends Survey
Recruitment and investment still planned,
% balance of change in past three months
q1
20
12
q4
20
11
q3
20
11
q2
20
11
q1
20
11
q4
20
10
20
10
q3
Investment
q2
20
10
q1
20
10
q4
20
09
q3
20
09
q2
20
09
20
09
q1
40
30
20
10
0
-10
-20
-30
-40
-50
Employment
%
Source: EEF Business Trends Survey
WHERE DOES 2012 GO FROM HERE?
Manufacturers focus on growth
opportunities, but downside risks to UK
starting to build
Sharp turnaround in expectations,
% balance of change expected in next three months
%
Output
Orders
40
30
20
10
0
-10
-20
-30
-40
20
05
q
20 1
05
q
20 3
06
q
20 1
06
q3
20
07
q
20 1
07
q3
20
08
q
20 1
08
q
20 3
09
q
20 1
09
q
20 3
10
q
20 1
10
q
20 3
11
q
20 1
11
q
20 3
12
q1
-50
Source: EEF Business Trends Survey
Firm-level indicators to end the year higher,
% of companies expecting change in 2012
%
Increase
Same
Decrease
100
80
60
40
20
0
Permanent
employees
Temporary
employees
UK sales
Export sales
Profit
margins
Productivity
Source: EEF Executive Survey 2012
Manufacturers identify growth opportunities,
% of companies
Demand for services in new markets
Demand for products in emerging markets
Diversification into new supply chains
Demand for lower cost goods & services
Demand for low carbon goods & services
New technology/product development
0
10
20
30
40
50
%
60
Source: EEF Executive Survey 2012
50% of exports not destined for EU,
% change in manufactured exports by destination 2011
%
50
40
30
20
10
0
-10
Source: HMRC
U
S
si
a
R
us
di
a
In
na
C
hi
il
B
ra
z
ai
n
Sp
ga
l
rt
u
Po
la
nd
Ire
EN
A
M
EU
To
ta
l
-20
Growth from a broad base of markets,
% expecting growth in markets in next 12 months and 5 years
Developed countries
SE Asia
India
Gulf states
China
Brazil
Next 12 months
Next 5 years
Russia
Turkey
0
10
20
30
40
50
60
70
80
%
Source: EEF Manufacturing Focus Survey
Progress in difficult markets,
% of companies see barrier to emerging market entry
Shipping costs
Poor credit protection
Language difficulties / barriers
Lack of knowledge about opportunities
Exchange rate
Differences in business practices
%
0
10
20
30
40
50
60
Source: EEF Manufacturing Focus Survey
Longer term trend heading in one direction,
% share of global output
India
MENA
India
Asia (exc
China)
EU
MENA
EU
S
America
Asia (exc
China)
S
America
Japan
US
Japan
China
US
Rest of
World
2010
Rest of
World
China
2030
Source: Standard Chartered
Challenges still on the horizon,
% of companies citing risk to growth in 2012
Raw materials shortages
Financial crisis
Access to external finance difficulties
Significant upward pressure on pay
Deterioration in workplace relations
Risks to growth
Global economic downturn
Most significant risk
Significant movements in exchange rates
%
0
20
40
60
80
100
Source: EEF Executive Survey 2012
Overall UK outlook more challenging
 Investment outlook – Investment intentions not translating into
increased capex. Credit cost remains elevated and EEF credit
conditions shows limited signs of sustained improvement in
availability.
 Labour market – Labour market prospects still look weak;
claimant count levels high. Proportion of temporary workers
wanting permanent job growing and share of long-term unemployed
rising.
 Consumer – Confidence indicators are low, but stable. Economic
situation weighing on consumers, household belt-tightening set to
continue.
Recovery momentum to pick up in 2013,
% annual change in output
3
Manufacturing
%
GDP
2
1
0
2011
2012
Source: EEF
2013
Conclusion
• A more challenging period
• The recovery in the economy and manufacturing entered a more
challenging period at the end of last year after shaking off the
effects of temporary disruptions.
• A more uncertain environment
• The potential for further euro-wobbles still present one of the
biggest risks to growth.
• But still a more sustainable platform for growth
• Over the longer term, growth founded on higher investment and
net exports offers a more sustainable platform for growth.
Manufacturing is at the heart of this.