Report forecasts manufacturing growth

A report published today by EEF and BDO predicts a muted recovery in 2010 for Britain’s manufacturers before posting stronger growth in 2011.

The Economic Prospects 2010 report forecasts that manufacturing will grow by 1.2 per cent this year before picking up to 3.4 per cent in 2011. The report also forecasts the performance of individual manufacturing sectors is set to sharply diverge, with some enjoying strong growth while others with longer lead times are only just experiencing a downturn.

For the economy as a whole, the best prospects for growth are said to lie in the UK’s export potential as the world economy returns to growth. This will lead to some rebalancing of economic growth in the short term as exports grow this year and manufacturing outpaces the rest of the economy. However, as consumers remain cautious and continue to pay down debt and rebuild savings, the UK economy will grow by only 0.9 per cent in 2010. Credit constraints and a slow recovery in profitability are also likely to hold back business investment.

The report also highlights that risks to growth remain, not least from continued credit constraints and the impact of the electoral cycle on economic performance. However, further challenges will not be unique to the UK economy. Financial market risks and the need to address global account imbalances will play a part in determining global growth.

‘Last year was a record year for all the wrong reasons and the outlook for the UK economy this year is far from certain, with little momentum behind a recovery until the latter part of the year,’ said Lee Hopley, EEF chief economist. ‘While a stronger global economy and weaker exchange should help pull the UK back to growth, benefiting manufacturers in particular, things could still go wrong.

‘The outlook for different manufacturing sectors is also highly variable. Whilst some can safely say the worst is behind them, others are only just beginning to feel the chill. In what will be an uncertain world in 2010, companies will still be looking for stability from policy makers.’

Tom Lawton, head of manufacturing at BDO, said: ‘For most sectors in manufacturing the damage and decline of the recession of 2008/2009 now appears to be giving way to the slow and difficult recovery of 2010. And it looks like some of our key manufacturing sectors will continue to suffer the impacts of the global slowdown and global competition, at least in the early part of 2010.

‘Manufacturers will need to continue to implement cost-cutting measures, including staff reductions, to maintain profits in what will continue to be a very challenging market. In addition, the lack of access to credit will continue to cause major headaches for many manufacturers – in particular as the growth phase begins to place increasing demands on working capital. I have concerns that the early period of 2010 could prove very difficult and possibly fatal for some manufacturers.

‘But looking forward and on a more positive note, we feel that more significant growth in activity levels should begin in earnest towards the end of 2010 and gain momentum into 2011. Manufacturing remains very much in business in the UK.’

The report forecasts that those sectors that will lead manufacturing out of recession are primarily those exposed to export markets. Mechanical equipment, metal products and metals are predicted to see strong quarter-on-quarter growth throughout the year. 

However, long lead times protected the aerospace, defence and shipbuilding markets from the worst of the recession. Output is set to fall this year in the other transport sector as defence budgets are squeezed and civil aerospace remains weak. The auto industry will also suffer as funding from scrappage schemes runs out.