Exports weigh on manufacturing growth

Posted on 27 Apr 2015 by Victoria Fitzgerald

The recovery in British manufacturing continued in the three months to April, but the pace of growth eased and export orders growth remained sluggish, according to the latest CBI Quarterly Industrial Trends Survey.

The survey of 468 firms reported a slackening of growth in total new orders, as expected from January’s quarterly survey, but this still remained well above average. Domestic orders rose modestly, whilst exports growth remained unexpectedly slow-moving. Meanwhile output growth fell to its lowest since January 2013, but above the long-run average.

Firms have stronger expectations for the three months ahead, with output and orders growth anticipated to firm up and predictions for exports growth at their strongest since July 2014. But the number of firms highlighting orders or sales as a possible constraint to activity rose to its highest level since October 2013.

Numbers employed continued a record run of growth, albeit rising at the slowest pace in over two years, but are expected to be flat next quarter.

Looking to the year ahead, investment intentions have fallen sharply from strong levels across all categories, though they do remain at or above their long-run averages. Growth in optimism about both the current business situation and export prospects for the year ahead also dropped back.

Chris Sumner, managing director, FANUC UK said: “Manufacturing growth will come as a boost to the government with only 9 days until the election. Record-low inflation has stimulated domestic demand and in turn production growth.

Chris Sumner, MD at FANUC UK, sees a strong domestic market as an opportunity to invest.
Chris Sumner, MD at FANUC UK, sees a strong domestic market as an opportunity for UK manufacturers to invest.

“Over-seas orders have slowed down amidst continued economic fragility in the Eurozone. Whilst prevailing conditions constrain UK exports, a strong domestic market presents an opportunity to invest in product and process innovation.

“Recently, we have seen low input costs in the automotive and medical sectors result in increased production line technology investments. Businesses in these sectors are clearly making moves to boost competitive edge and output potential in preparation for healthier export markets.”

Katja Hall, CBI deputy director-general, said: “It’s encouraging that our manufacturers are seeing – and expect to see – continued growth, with rates of expansion still above average.

“Exports keep dragging at the heels of growth: firms are finding the recent rise in the Pound against the Euro challenging, making them less competitive in Europe, while the unravelling situation in Greece is creating uncertainty.

“Among the measures business wants in the first 100 days of a new government, an ambitious, long-term export strategy must be a central element to keep growth on course.”

Key findings – three months to April 2015

  • 37% of businesses reported an increase in total new order books, and 24% a decrease, giving a balance of +13%. This was significantly above the long-run average (-1%)
  • The balance for domestic orders (+12%) was also well above the long-run average (-5%)
  • The sluggish balance for export orders (+4%) remained unchanged from January’s quarterly survey, but is above the historical average (-7%)
  • 23% of manufacturers said employment numbers were up, and 18% said they were down, giving a balance of +5%. This was the slowest pace of growth since January 2013 (+2%)
  • 22% of firms reported a rise in output volumes, and 17% a decrease, giving a rounded balance of +4%, above the average of +1%
  • Manufacturers’ investment intentions compared to the previous twelve months deteriorated for buildings (to -19%, from -5%), plant and machinery (to -6%, from +16%), product and process innovation (to +18%, from +27%) and training and retraining (to +25%, from +32%)
  • Manufacturers believe their competitiveness in the EU has worsened (-30%) to its lowest level since April 2000 (-31%)
  • Firms with present capacity at least adequate to meet expected demand rose (91%) to its highest since July 2013 (96%)
  • Optimism about the business situation was broadly unchanged (+3%), whilst sentiment about export prospects for the year ahead fell (-9%)
  • The number of firms citing political/economic conditions abroad as a constraint on export orders in the coming three months continued to fall (to 28%, from 32%). Concern about price competition was not much changed from last January’s two-year high (52%, from 56%)
  • 70% of manufacturers said orders or sales was a factor likely to constrain activity over the next quarter, the highest since October 2013 (70%) and broadly in line with the long-run average (70%)
  • Energy-intensive sectors, such as metal manufacture, enjoyed a particularly strong quarter, reporting a fall in costs and prices, and a firm rise in output.

Key findings – next quarter

  • 36% of manufacturers expect total new orders to increase, and 14% expect them to decrease, giving a balance of +22%, the highest since July 2014 (+33%)
  • A balance of +18% expect domestic orders to rise (29% expect an increase, and 11% a fall), and +12% expect new export orders to rise (27% expect an increase, and 15% a fall)
  • 29% of firms anticipate a rise in output volumes, and 13% a fall, giving a balance of 16%
  • 19% expect employment to increase, and 21% expect it to decrease, giving a balance of -2%. This is still above the long-run average (-13%).

Separately, the CBI published monthly figures for April, which showed that total order books for manufacturers (+1%) remained in line with normal levels (0%). Export orders were below par (-11%), but were above their long-run average (-20%).