Business
Mixed outlook for 2012 for manufacturers in the South and East
12th January 2012
Growth forecast has been downgraded to 0.9 per cent but sector could perform well
Jim Davison, the South East region director for EEF, the manufacturers’ association, writes for Newbury Business Today
WE hear daily about the major economic crises currently facing UK business, particularly in relation to the challenges in the Eurozone and the likely impact on companies around the country, including of course those in the south and east.
As our biggest export market, continuing problems in Europe are certainly leading to a lack of confidence in the short term. Many commentators paint a very gloomy picture and certainly, in the last three months, the region’s manufacturing output and total orders have both declined, with a 24 per cent negative swing in both measures, with the balance between companies showing positive and negative results now standing at -14 per cent.
It comes as no surprise that recruitment intentions have also weakened, with employment trends now standing at -14 per cent compared with positive indicators three months ago.
We must remember, however, that the manufacturing industry has been a key pillar in the UK’s slow recovery in 2011 and is still likely to end the year on the up with an overall gain in output and orders across the year as a whole.
The Chancellor’s Autumn Statement outlined some positive measures for manufacturing and engineering which should offer some encouragement for investment. For example, the announcement on R&D tax credits will have a positive impact on investment decisions across a range of industries, particularly those with a focus on innovation and technology. We are fortunate to have a strong representation of such industries and expertise in the south, in areas such as aerospace, automotive and marine technologies.
What is less clear is how other sectors will fare. Indeed, the divergence in sectoral performance which became apparent in Q2, has intensified in recent months; basic metals, rubber and plastics and electronics are reporting negative output growth, whereas aerospace, motor vehicle supply chains and mechanical equipment have performed much stronger. This pattern looks set to continue.
Looking forward, the increasing economic uncertainty has resulted in EEF downgrading its forecast for manufacturing growth in 2012 to just 0.9 per cent, down from its previous forecast of 2.2 per cent. However, manufacturing still looks set to perform well in relation to other parts of the UK economy in 2012 and I would strongly encourage the Government to increase the momentum of support for the sector to help rebalance and boost the economy.
Global growth concerns have escalated throughout the second half of 2011 and I think we can expect to see a contraction in order books in home and overseas markets over the next three months. Manufacturers will need to work hard to become even more cost efficient and invest in lean practices.
Exporters should also attempt to identify new export opportunities for new and existing products in Brazil, Russia, India and China, where market opportunities remain strong, because it does appear that European markets will certainly be weaker over the next 12 months.
Finally, I know that some companies are already operating valuable training and apprenticeship schemes, but I hope that 2012 will see an increase in the options available to school leavers and adults. Everyone understands the financial pressure facing all companies, but we do need to try to think further into the future if we are build the skilled workforce that our manufacturing sector will require.
We are likely to see natural rise in apprenticeship applications as the cost of higher education increases and I would encourage parents and teachers to work with us to show young people that a career in manufacturing is exciting, challenging and well rewarded. It is sometimes seems hard to imagine that good growth levels will return…but they will and we need to have the skills in place to capitalise on the opportunities that arise.
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