Last week we released our Manufacturing Outlook survey which showed a record-high balance of manufacturers were expecting growth in the coming three months. We are forecasting that manufacturing output will grow 2.7% over the course of 2014. But what about the sectors within manufacturing?
We expect ten of the thirteen sectors we provide forecasts for to grow over the course of the year. Where contraction is forecast, it is moderate.
As with previous quarters, some of the strongest growth rates will come from the transport sectors, which have continued to benefit from long order times and buoyant emerging market demand, however, mechanical equipment is also likely to grow strongly as capital expenditure starts to pick up. Growth in these sectors, as well as on-going strength in housing and infrastructure construction, is likely to benefit a range of other manufacturing sectors.
Transport sectors continue to perform well
Motor vehicles and other transport will continue to grow strongly in 2014. The motor vehicles sector should see output increase as the production of new models comes on line, while aerospace continues to benefit from strong demand in a diverse range of markets. We expect growth of 2.4% and 3.7% in these sectors respectively. Employment should also grow in both of these sectors.
Strong growth spreads to more sectors as demand conditions improve
The basic metals sector is likely to post a strong growth rate in 2014. Partly this will be a result of base effects from a good 2013 – as more production facilities came online – however, manufacturers in the sector also report increased demand in some areas. Although output will grow, margins remain a major concern for basic metals manufacturers due to continued overcapacity in Europe. We therefore expect softer growth in 2015 and falling employment.
Mechanical equipment should grow strongly, by 4.8% in 2014. In part this will reflect a bounce back from a weak 2013, but companies in the sector should also benefit from the increased demand for investment goods evident in our Business Trends survey.
Demand for investment goods, construction and automotive components will drive growth in other sectors
Firms in the electrical equipment sector should also benefit from increased demand for investment goods, indeed, a balance of 45% of companies in the sector say they expect orders to increase in the next three months. As a result, we are forecasting output to grow by 3.3% this year. Metal products manufacturers sell to a diverse range of sectors and stand to benefit from increased demand from the mechanical equipment sector in particular. On-going strength in motor vehicles and construction should also provide a boost to growth to manufacturers in this sector.
We expect metal products output to increase in the next three months, and we are forecasting that output will grow 3.3% over the course of the year. The strength in motor vehicles and construction should continue to provide growth opportunities for the rubber and plastics and non-metallic minerals sectors as 2014 progresses. We expect the sectors to grow by 3.0% and 3.4% respectively, though there are some capacity risks in non metallic minerals that may hold back growth. In addition, growth rates in the rubber and plastics sector may suffer from the introduction of a plastic bag tax in 2015.
Consumer facing sectors more likely to see shifts in demand than growth
Food and drink should return to growth in 2014, though at a modest rate of 0.4%. Although consumer spending has started to strengthen we do not expect this to have a large impact on growth as shifting tastes and demands mean consumption patterns are likely to change rather than grow.
Similarly, while the electronics sector may benefit from increases in consumer demand, shifting tastes away from PCs and towards mobile devices offer challenges as well as opportunities for manufacturers in the sector. There are pockets of strong growth potential, such as automation in factories, but we expect these to benefit the sector over a longer-time horizon. As such we are forecasting that the sector will post a modest decline in 2014, in line with long term trends.
Structural issues hold back growth in some sectors
Although we are forecasting a reasonably strong growth rate of 1.9% across the chemicals sector as a whole this year, this is supressed by weakness in the pharmaceutical sector, which we expect to contract this year as a result of fierce competition and some continued impact from patent expirations.
We are forecasting slight contractions in both textiles and paper and printing this year. Although some textiles manufacturers should benefit from a resurgence in demand for UK-made products, the overall impact on the sector is likely to be limited. Nonetheless, our forecast for a fall in output of 1.3% is relatively small compared with pre-recession trends.Paper and printing continues to suffer from a move away from print towards electronic media, and – despite growth in 2013 – we are forecasting a moderate contraction of 0.4% this year, followed by a fall in output of 1.9% in 2015.