Q3 roundup – What’s in store for the third quarter of 2013? | EEF

Q3 roundup – What’s in store for the third quarter of 2013?

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Last week ONS published its third estimate of GDP along with a number of revisions, both good and bad, to the underlying data. In this blog I will give a bit of a roundup of some domestic and international indicators, including a bit of a look at what the data is indicating about Q3.

Production – signs are reasonably positive, especially for manufacturing

Growth in the Production industries was flat in July, with growth in Manufacturing and Water and Waste being offset by contraction in Mining and Quarrying and electricity generation.

Confidence building momentum

  • EEF's Business Trends Survey published in September indicates we are likely to see activity continue to improve in the manufacturing sector in the second half of 2013.
  • The Manufacturing PMI reached 57.2 in August, the highest recording in two and a half years.

Business Investment – not moving in the right direction … yet

Growth was revised away with the third estimate of GDP last week, with business investment shown to have fallen 2.7% in the second quarter of this year. This means business investment is now 27% below its pre-recession peak.

Lending is also going south

  • Net lending to businesses continued to fall in August, recording a drop of £2.7 billion according to the Bank of England's latest stats.
  • Net lending fell to large and small businesses alike, with lending to large businesses falling more.
  • SME lending was down £0.7 billion in August after falling £0.9 billion in July.

...but business confidence is picking up

  • A quarterly survey by Deloitte gives hope that business investment may start to pick up, with optimism close to a three year high and expansion ranking as the top priority for CFOs.
  • Our own Business Trends Survey showed investment intentions reached a six year high in 2013q3.

Trade – a good q2 but uncertain q3

Goods exports expanded 3.3% in the second quarter of 2013, with net trade contributing a 0.4% to economic growth. However, the most recent trade data release shows goods exports fell by 7.6% in July. These monthly figures need to be taken with a grain of salt, however, as they tend to be very volatile and do not give an accurate reading on the overall trend.

International Growth mixed

The Eurozone returned to growth, expanding 0.3% over the quarter. As markets turn their attention back to the Eurozone after the German election, sentiment seems to be one of cautious optimism as discussed in this article. Some of the factors driving this confidence include signs of some stabilisation in the labour markets, real wage growth and consumer confidence picking up. However, industrial production contracted quite heavily in July, falling 1.5%.

The US posted annualised growth of 2.5% after a big upward revision to the data but lack of growth in consumer spending in July has raised concerns for q3. Industrial production rose in August by 0.4% after a flat July.

The story for emerging markets has not been quite as rosy. China's growth slowed in the second quarter of 2013 from 7.7% in the first quarter to 7.5% annualised in q2. However, recent export and industrial production figures were very strong, with production growing faster than expected in August.

International Manufacturing PMIs reaching highs

International PMI's have been improving virtually en masse over the past couple of months, with the exception of China. PMI's for the US, Eurozone and the UK have all reached highs of two years or more over the past couple of months. China, in contrast, has weakened from the strength in late 2012 and early 2013 but remains just above the neutral 50 mark.

The latest data brings both positive and negative signs from around the world. It would be fair to say these indicators show that the UK still faces significant risks and challenges and the process of recovery and rebalancing still has a long way to go.


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