Publishing its first quarter survey which shows a number of indicators hitting record low levels, EEF warned that the sector faces a significant squeeze for the rest of this year with only a minimal recovery in 2010.
Commenting, EEF Chief Economist Steve Radley, said:
“There is simply no hiding the fact these figures make grim reading. The past three months have been extremely difficult for manufacturers, with markets at home and abroad showing severe declines. However, whilst few firms expect things to get better in the near future they are also focusing on making sure they are ready to take advantage of the eventual recovery.
“The priority for government remains getting credit flowing again and helping companies to invest. In addition, there is now an urgent need to support companies in hanging on to the skilled workers they will need for when the upturn comes. Government must now consider all possible avenues to help companies deliver alternatives to redundancy.”
On interest rates and other measures, Steve Radley added:
“The debate on interest rates is now largely academic given how low they are already and the limited potential for further cuts to have any effect. Business is now looking to the government and the Bank of England to ensure that well run firms are able to access the credit they need to run their operations"
Key results:
· Output and orders hit record lows
· Job cuts increase, 140,000 forecast losses in manufacturing in 2009
· Forward-looking balances lowest in series history
· Growth forecasts revised downwards for 2009 and 2010
With regard to output and orders the balances fell sharply to historic lows of -39% and -54%, respectively. The decline in the total new orders balance was driven by a sharp decline in both domestic and export orders. Reflecting the significant downturn in the domestic economy, the balance of responses on domestic orders fell to -54%, from -26% in 2008q4, whilst the export orders balance declined to -43% from -10%.
Only 15% of respondents reported an increase in export orders, suggesting the global slowdown may have prevented the weaker pound providing a significant boost to export orders.
The downturn has now spread to all sectors and regions. Firms in the motor vehicles sector reported a sharp fall in both output and orders as balances hit -91% and -89% respectively. This has had knock-on effects on firms in the metals sectors, who supply car manufacturers, for example. After motor vehicles, the metals sectors reported the weakest output and orders balances.
As was the case in 2008q4, the weakening automotive sector has impacted on the West Midlands economy which posted the weakest output balance of -63%. Similarly, the West Midlands posted the weakest orders balance, coming at -69%, from -31% in 2008q4. Weak orders balances were also reported in the East Midlands and Eastern at -59% and -55%, respectively.
As might be expected, the slowdown is now having a significant impact on employment and investment intentions. The employment balance fell to -37%, down from -13% in 2008q4. Large companies, with more than 200 employees, were the most likely to report job cuts. Similarly continued downward pressure on cashflow has led a balance of 45% of companies to cut back their investment plans. This could have potential implications for companies when demand picks up again.
Given the speed and scale at which the downturn has hit manufacturing, firms are extremely pessimistic about the next three months. The forward-looking output and orders balances also hit new record lows of -41% and -42% respectively. In response, EEF has downgraded its economic forecasts with manufacturing output falling this year by 8.6% with only a pick up of 0.2% in 2010. In engineering, output is forecast to decline by 10.9% in 2009 and by 0.9% next year.
ENDS