The manufacturing sector’s ride into negative territory may be coming to an end, says a quarterly survey published by manufacturers’ organisation EEF.
Improvements in output and orders in the first quarter of this year and expectations of a further pick-up over the coming quarter delivered “welcome chinks of light”, it said.
The EEF’s previous quarterly outlook in December 2015 painted a bleak picture for manufacturers after hitting its weakest point in six years, with growth for 2015 revised down to -0.1%.
While total orders still remained negative in the first quarter of 2016, many companies surveyed saw an easing of these conditions, the EEF said.
However, it cautioned that many manufacturers were not yet out of the woods.
Aside from some growth hotspots around the world, it saw no sign of a sustained improvement in demand to swing export orders back into positive territory in the short term.
It also highlighted a two-speed performance, with the chances of a sustained recovery in 2016 looking slim for sectors exposed to the slump in the oil price and the beleaguered steel sector.
Steady goes it
In contrast, the chemicals and pharmaceuticals sectors would find themselves “in the fast lane” and for other sectors it will be ‘steady as she goes’ for much of manufacturing, the EEF said.
While the survey results signalled a return to modest growth this year, it warned the timing of an export and investment recovery looked less certain.
Volatility in global stock markets would continue to impact on exports, and weigh on manufacturers’ confidence to invest and boost headcount. This would be exacerbated by the UK’s EU referendum campaign, and concerns of a more widespread global economic slowdown, it said.
What these findings make clear is that manufacturers face challenge enough – they certainly don’t need more pressure from domestically generated uncertainty or costs
Lee Hopley, chief economist at EEF
On this basis, EEF had revised its GDP forecast down from 2.1% to 1.9% and shaved its manufacturing growth forecast down to 0.6% from 0.8%.
“The slide is bottoming out, but manufacturing is still in negative territory and faces a precarious climb back up amidst a storm of real uncertainty. In a two-speed scenario, the fact that even those sectors in the fast lane are not relaxed about the global outlook probably says it all,” said Lee Hopley, chief economist at EEF.
“What these findings make clear is that manufacturers face challenge enough – they certainly don’t need more pressure from domestically generated uncertainty or costs.”
Q1 report highlights
Output balance and total orders up from a six-year low in Q4 last year
EEF revises GDP forecast down to 1.9% and shaves manufacturing growth forecast down to 0.6% from 0.8%
Sectors exposed to slump in oil price will continue to be hardest hit.