Confidence among West manufacturers appears to be “draining away” as output slumps to levels last seen nearly three years ago, a downbeat survey shows today.
With margins squeezed, exports down sharply and no overall job creation in the sector, the survey results paint a “dark picture”, according to accountants BDO which commissioned the research with EEF, the manufacturers’ organisation.
They said that while the region’s manufacturers had anticipated some softening in output this quarter, the survey showed a more marked weakening than expected across a range of indicators. Output over the past three months fell to its lowest level since the fourth quarter of 2009.
Manufacturers had experienced some of the toughest trading conditions since the end of the recession, with few signs of improvement in the short term.
Among the findings of the survey, which uses a plus or minus balance to measure activity against key indicators, are:
- A balance of minus 20% for increased output and minus 6% for orders, down considerably from plus 25% and plus 31% last quarter.
- A balance of plus 19% reporting a deterioration in export margins and 24% seeing a further squeeze on margins on UK sales.
- The balance of responses on investment intentions remains positive, but at 5% is down on the previous quarter.
- A balance of 0% indicating they increased their employment.
- However, looking forward, 17% expect orders to grow in the next three months.
- Following the sharp contraction in manufacturing output in the first half of this year, the EEF has again revised down its forecast to a contraction of 1.5% for 2012, with growth of 1.5% next year. The corresponding figures for GDP are -0.2% and 1.4%.
EEF regional director Phil Brownsord said: “The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey. Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to manufacturers and also our economy’s reliance on exports as a source of growth.
“However, some positive news can be taken from the improvement in the short-term outlook and the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term. It’s encouraging to see that companies are not planning for a further deterioration in conditions as we head into the final months of the year. But, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”
John Talbot, pictured, of BDO’s Bristol office added: “The results of the survey paint a dark picture with weakening markets across the board. Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter. With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.
“However, it is not all bad news. Larger companies in the region that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent, irrespective of the worsening market conditions. This indicates that manufacturers have learnt the mistakes of the past, are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”
