Transcript The Economy - Implications for Manufacturers

The outlook for manufacturing and the
economy
Lee Hopley
EEF Chief Economist
OVERVIEW
• Manufacturing sees decent start to recovery.
• But outlook becoming more mixed across the sector.
• Companies planning to invest and recruit, but confidence has
begun to slide.
• Wider UK economic outlook much more uncertain.
• A raft of external factors raising the risks to growth.
• 2012????
• Any reasons to take a glass-half-full view of manufacturing?
CURRENT CONDITIONS
Manufacturing growth outpaces wider
economy and drives export-led recovery
Data revisions provide new info on recession
and recovery, % change in output
4
%
First Estimate
Revision
%
First Estimate
Revision
8
2
4
0
0
-2
-4
-4
-8
-6
-12
-8
-16
Peak-trough
Trough-current
GDP
Peak-trough
Trough-current
MANUFACTURING
Source: National Statistics
Q3 GDP brings a little relief,
% quarter on quarter change
%
2011q1
2011q2
2011q3
2
1
0
-1
-2
rv
ic
P
se
se
he
r
s
G
vt
&
ot
in
es
B
us
G
D
es
es
rv
ic
m
co
m
rt
&
sp
o
Tr
an
tn
,h
tr
ib
D
is
s
.
et
c
el
s
ot
st
C
on
M
an
u
fa
ct
u
rin
ru
ct
io
g
n
-3
Source: National Statistics
Manufacturing still growing,
% balance of change in past three months
%
Output
Orders
20
04
q
20 3
05
q
20 1
05
q
20 3
06
q1
20
06
q
20 3
07
q1
20
07
q
20 3
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
q3
40
30
20
10
0
-10
-20
-30
-40
-50
-60
Source: EEF Business Trends Survey
Exports drive manufacturing orders,
% balance of change in orders in past three months
40
30
20
10
0
-10
-20
-30
-40
-50
-60
%
Domestic
Export
q2 4 q4 5 q2 5 q4 6 q2 6 q4 7 q2 7 q4 8 q2 8 q4 9 q2 9 q4 0 q2 0 q4 1 q2
4
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
20
20
20 20
20
20
20 20
20
20
20 20
20
20 20
Source: EEF Business Trends Survey
Non-EU economies provide a boost,
goods exports by destination, 2008q1 = 100
Non-EU
EU
China
Germany
France
US
170
150
130
110
90
q
20 3
08
q4
20
09
q1
20
09
q2
20
09
q3
20
09
q4
20
10
q1
20
10
q2
20
10
q
20 3
10
q4
20
11
q1
20
11
q2
20
08
q2
20
08
20
08
q1
70
Source: National Statistics
..but these markets still not on the agenda for
some, % of companies with involvement in emerging markets
Currently exporting
Considering exporting
Not currently considering
Middle East
India
China
Asia (exc China)
Russia
Brazil
%
0
20
40
60
80
Source: EEF Export Survey
100
Sector differences becoming more marked,
% balance of change in output in past three months
Output
%
60
Orders
40
20
rt
er
O
th
ot
o
rv
tr
an
eh
ic
sp
o
le
s
al
El
ec
tr
on
El
ec
tr
ic
s
ca
l
an
i
ec
h
M
ic
M
M
et
a
M
lp
ro
du
et
a
ct
s
ls
0
Source: EEF Business Trends Survey
Recruitment plans ease,
% balance of change in employment
hs
on
t
m
q3
N
ex
t3
20
11
q2
20
11
q1
20
11
q4
20
10
q3
20
10
q2
20
10
q1
20
10
q4
20
09
q3
20
09
20
09
q1
20
09
q2
%
40
30
20
10
0
-10
-20
-30
-40
-50
Source: EEF Business Trends Survey
SMEs more cautious in forecasting growth,
% balance of change in orders in next three months
50
Small
%
Large
40
30
20
10
0
-10
-20
-30
Output
Export orders
Export margins
Investment
Source: EEF Business Trends Survey
Manufacturing growth to continue,
% annual change in output
4
Manufacturing
%
GDP
3
2
1
0
2010
2011
2012
Source: EEF
RISKS, CHALLENGES AND
OPPORTUNITIES
Where will the global economy go from
here?
Downside risks … and more of them
• government spending cuts;
• deteriorating labour market prospects;
• access to finance;
• other lingering UK business environment concerns;
• disorderly eurozone debt default;
• weaker outlook for US economy;
• emerging markets must navigate soft landing.
UK outlook more challenging
 Investment outlook – Investment intentions not translating into
increased capex. Credit cost remains elevates and BoE credit
conditions suggests worsening in Q4.
 Labour market – Labour market prospects look very weak;
claimant count is rising, and outflows have fallen. Proportion of
temporary workers wanting permanent job growing.
 Consumer – Confidence is shaky, indictors heading towards 2009
lows. Economic situation weighing on consumers, household belttightening set to continue.
ay
-0
Ju 8
lSe 08
p
N -08
ov
Ja 08
nM 09
ar
M -09
ay
-0
Ju 9
lSe 09
p
N -09
ov
Ja 09
nM 10
ar
M -10
ay
-1
Ju 0
lSe 10
pN 10
ov
Ja 10
nM 11
ar
M -11
ay
-1
Ju 1
lSe 11
p11
M
Softening across the board,
index of activity, 50 = no change
%
65
US
Germany
France
UK
Eurozone
China
60
55
50
45
40
35
30
25
Source: Markit Economics and ISM
Global outlook….
The good, the bad and the ugly
GOOD
• Greek political wrangling
– an end in sight?
• US Q3 better than
expected.
• US manufacturing
activity still positive
• Emerging market engine
not spluttering yet.
• Commodity prices
should head lower.
• Monetary authorities still
have a bit of fire power.
UGLY
BAD
• European activity
indicators signal
contraction.
• ITALY?
• German output sees
consecutive monthly falls.
• Business confidence
across ez tumbles.
• US consumers aren’t too
cheery either.
• US labour market
conditions have
deteriorated.
Where will we go from here?
% annual change in GDP
10
Jan-11
%
Oct-11
Worst case
8
6
4
2
or
ld
W
di
a
In
na
C
hi
U
K
ce
Fr
an
an
y
G
er
m
e
ro
zo
n
Eu
-2
U
S
0
Source: Oxford Economics
But opportunities in new markets remains,
% of UK exports and % annual GDP growth, 2010
60
%
% of exports
%
GDP growth
12
10
50
8
40
6
30
4
20
2
0
-2
• Scope for greater gains through
collaboration
• Re-thinking sourcing and supply
chain management – everything
to gain?
G
C
• Societal and environmental
challenges also bring new market
potential
er US
m
a
Fr n y
Eu an
ro ce
zo
ne
N
et
he Ita
rl a ly
nd
s
Sp
ai
n
0
hi
na
In
d
M B ia
id ra
dl zi
l
e
Ea
R st
us
S s ia
K
or
ea
10
• Scope for greater in-roads into
emerging markets
Source: National Statistics and Oxford Economics
A wider range of innovations,
% of companies introducing innovation in past three years
70
%
2008
2009
2010
• Strategies focus on value-addition
and new market entry.
60
• Competition on the basis of
research and design.
50
40
• Innovation across all activities a
growing priority.
30
• Global look at locations of activities.
But innovation/production link not
easily severed.
20
10
rv
ic
e
• Service provision provides revenue
potential – and cushion in difficult
times.
Se
t
Pr
od
uc
es
s
Pr
oc
d
m
et
ho
O
rg
M
&
D
0
Source: EEF Innovation Monitor
Conclusion
• A more challenging period
• The recovery in the economy and manufacturing has entered a
more challenging period since the start of the year growth flat in
H1.
• A more uncertain environment
• Diving consumer confidence, euro-shakes, US wobbles and
spreading global growth concerns – all increasing sources of
uncertainty
• 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.