The effects of the recession appear to be stabilising in some sectors as destocking nears an end. However the timing of a return to growth remains uncertain.
Commenting Lee Hopley, EEF Head of Economic Policy, said:
"The weakness in world markets has hit the sector hard, but it looks like manufacturers are now close to the bottom of the cycle. Nevertheless companies will be navigating through the current economic storm in the months to come. And there are big question marks about when we will see any substantive signs of a recovery in demand.
"While there may be some bright spots on the horizon, the government can not afford to think its work is done and lose focus on the economy. While companies are preparing for the upturn, government and the Bank of England need to ensure they can access the support they need from banks and credit insurers."
Key results
Output remained depressed in the second quarter with few signs of an improvement in demand in home or export markets.
While still negative, responses on output and orders have improved in some sectors
Price cutting picks up and margins squeeze continues
Employment and investment plans continue to be cut back
However, companies have become less pessimistic about the future
Forecasts show a return to growth in 2010.
Both output and orders balances remained in double-digit, negative territory for the third consecutive quarter. The output balance fell to -52% from -39%, while the new orders balance stabilised. Continued weakness in global trade and exchange rate volatility continued to blunt the potential boost from a weaker pound with the balance on export orders remaining relatively unchanged.
The regional picture was mixed with those that reported the weakest output and orders balances in 2009q1 reporting an improvement in activity, albeit from low levels. Orders balances for the West Midlands and North East rose but remained at historic lows of -47% and -30%.
By sector, for the first time in six months, the output balances in basic metals and motor vehicles improved, reflecting the fact most of the significant production cuts by the automotive industry had already been carried out in the previous two quarters. However, the most marked decline in the output balance was in other transport.
G
iven the lag effect of unemployment the pace of job cuts worsened with the employment balance reaching a record low of -40%. The slight improvement in the cashflow balance, coupled with a more stable outlook for orders helped prevent further deterioration in firms’ investment intentions as the planned capital expenditure balance held steady at -45%.
Looking to the next three months, almost all sectors are less pessimistic about output and orders from both domestic and overseas customers. A balance of 13% of companies expects further output cuts next quarter, compared with 41% in the first quarter.
Looking forward to the rest of this year and next, although the outlook has stabilised, the sharp fall in activity in 2009q1 has led EEF to downgrade growth forecasts for 2009. It expects manufacturing output to fall by 11% in 2009, in which a return to growth in 2009q4 precedes a modest recovery of 0.4% growth in 2010. Engineering output is forecast to decline by 17.5% this year and by 0.8% next year.
ENDS
The survey was conducted between April 29 and May 20, with 678 companies responding. The results presented cover the full range of engineering sectors – metals, metal products, mechanical engineering, electronics, electrical engineering, motor vehicles and other transport equipment.