Manufacturers signal worst may be over

Posted on 1 Jun 2009 by The Manufacturer

Britain’s manufacturers appear quietly confident that trading conditions will improve later in the year, according to the latest survey from EEF, the manufacturers’ organisation.

The organisation’s survey of business conditions in the second quarter of 2009 returned bleak figures for both output and new orders once again. Balances – the difference between firms reporting a rise and firms reporting a fall – were -52% from -39% and -52% unchanged for the two measures respectively.

However, the effects of the recession appear to be stabilising in some sectors as destocking nears an end.

Output balances in basic metals and motor vehicles improved in Q2 as many automotive plants began production again following widespread breaks at the back end of 2008 and the beginning of 2009.

And looking forward to the next three months, only 13% of companies across all sectors expect to cut output, compared with 41% in the first quarter.

“The weakness in world markets has hit the sector hard, but it looks like manufacturers are now close to the bottom of the cycle, said Lee Hopley, EEF Head of Economic Policy. “Nevertheless companies will be navigating through the current economic storm in the months to come. And there are big question marks about when we will see any substantive signs of a recovery in demand.

“While there may be some bright spots on the horizon, the government cannot afford to think its work is done and lose focus on the economy. While companies are preparing for the upturn, government and the Bank of England need to ensure they can access the support they need from banks and credit insurers.”

Overall EEF expects manufacturing output to fall by 11% in 2009, in which a return to growth in 2009q4 precedes a modest recovery of 0.4% growth in 2010. Engineering output is forecast to decline by 17.5% this year and by 0.8% next year.

Key results

• Output remained depressed in the second quarter with few signs of an improvement in demand in home or export markets.

• While still negative, responses on output and orders have improved in some sectors

• Price cutting picks up and margins squeeze continues

• Employment and investment plans continue to be cut back

• However, companies have become less pessimistic about the future

• Forecasts show a return to growth in 2010.