There was more evidence this week of the US slowdown making itself felt among UK manufacturers, with the previously buoyant electronics sector looking more fragile in the latest quarterly survey from the EEF.
While growth in engineering output is still outpacing the rest of the economy, the latest prediction for 2001 has been trimmed back from 3.5% to 3.2%, reflecting the downward trends in the global economy.
‘The two biggest economies in the world, the US and Japan, are faltering, and forecasts are also being revised downwards for Germany, the third biggest,’ said EEF chief economist Stephen Radley.
The US slowdown and the cooling off of the global boom in high-tech industries is expected to halve growth in electronics in the UK from 17% last year to 9% this year, with a further fall in output growth to below 5% expected in 2002. Growing weaknesses Monday’s announcement by Compaq computers that it will lay off workers and cut back production in Scotland – following Nortel Network’s news of job losses last week – was a further sign of the growing weaknesses across the sector.
However, electronics is still forecast to grow faster than the rest of the engineering sector, though growth in aerospace is starting to pick up on the back of new orders for Eurofighter and Airbus, and aerospace companies are now the most bullish about growth.
Among the hardest hit is the automotive components sector, with car makers planning to source more parts from continental Europe. Output and orders for the West Midlands region significantly underperformed the rest of the UK, the survey shows.
The EEF forecasts a total of around 64,000 more job losses in engineering this year, compared with around 45,000 last year. This is creating a positive effect on productivity measures (more output with fewer workers) though there is still a steady downward trend in investment spending, described by Radley as a ‘real worry for the long-term future of UK manufacturing’.
Export orders also look weaker, and for the first time in 12 months a majority of firms is reporting falling orders, according to the survey. Exporters to the EU seem to be holding up strongly, where, despite the downward trend of growth in Germany, ‘the overall outlook for the EU is not bad’, said Radley.
Meanwhile, the Chartered Institute of Purchasing and Supply’s March report also said the US’s economic problems are having an impact on the UK.
Roy Ayliffe, CIPS director of professional practices, said the first effects of the US slowdown on the UK economy are now evident with manufacturing firms experiencing the first output drop since last November and the first reduction in orders in two years.
The seasonally adjusted output index for the whole manufacturing economy measured 49.1 points in March, down from 53.6 points in February, the first fall in six months. The new orders index measured 49.9 in March compared with 54.7 in theprevious month.
This week US battery maker Exide Technologies said it is to cut jobs at its plant in Cwmbran, Wales, as part of a plan to cut costs by £63m. AEEU regional organiser for Wales, Brian Godsall said: ‘We’re not looking at closure. The company is looking at restructuring for more flexible work practices, but there will be a head count reduction.’
Job cuts possible
US-owned automotive and aerospace supplier TRW is undertaking a strategic review which could result in job cuts in the UK, including former LucasVarity plants in the West Midlands.
The UK firm denied that the restructuring was linked to parent company problems. A spokesman said plans for redundancies were due to reduced demand from UK-based car companies, not the US market.
The threat of a US-inspired economic slowdown increased pressure on the Bank of England to cut interest rates on Thursday. The European Central Bank is also coming under pressure from the International Monetary Fund to reduce its 4.75% rate.
However, despite the gloom, figures released this week by the US National Association of Purchasing Management said its index of factory activity rose for the first time in more than 12 months, and car sales were higher than expected, prompting cautious optimism from US manufacturers.