Engineering begins slow climb to recovery

There is little evidence of anything but a long, slow climb out of recession for the engineering industry, according to a new report from the UK-based EEF.

Though there are signs that the decline in engineering output may have come to an end, there is little evidence of anything but a long slow climb out of recession, according to a new report from the UK-based Engineering Employers’ Federation (EEF) and RSM Robson Rhodes.

The report indicates that engineering output will decline by around 7.5% this year but recover by almost 4.5% next year. Worse though, it also says that engineering businesses will shed a further 90,000 jobs this year on top of last year’s 70,000.

Overall, engineering output and orders fell for the fifth successive quarter, although the pace of decline eased considerably in the latest three months. However, the recovery in conditions has begun from a low base, with official figures showing that, in the twelve months to March 2002, output in engineering fell 14.2% and in manufacturing by 6.7%, the largest annual fall since 1981.

EEF Chief Economist Stephen Radley said: ‘there are some signs of improving confidence but little tangible evidence of actual growth.’

In addition, while firms are expecting output and orders to expand slightly in the coming months, inflation also remains non-existent and far more expect prices to fall rather than rise. Over the past three months, prices and margins have remained depressed.

The EEF’s forward-looking indicators have become more positive for the second half of 2002, although this depends on a stable environment in the UK and an upturn in global trade. As a result, the EEF believes that it is far too early to consider increases in interest rates given the uncertain outlook for manufacturing the economy and the complete absence of inflationary pressures.

By sector, companies in traditional industries such as metals, metal products and mechanical engineering remain under intense pressure, while over-capacity and weak demand continue to impair growth in electronics. However, electrical engineering, the motor industry and other transport equipment have all seen output recover in the last three months, indicating an upturn in supply chain activity.

Bob Hale, Chairman of RSM Robson Rhodes Engineering Group, added that: ‘the current recovery looks fragile and there are major concerns within the manufacturing sector over three successive rises in steel prices over the last five months. Whilst these have not yet fully impacted on the sector, the worry is that they will have a detrimental effect on future margins.’

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