Yesterday’s headlines suggested that we were predicting doom for manufacturing for the rest of this year. But manufacturing is diverse and growth prospects vary accordingly. Here’s a rundown of our revised sector forecasts for 2015.
Our full year forecast for manufacturing now stands at 0.7% compared with expectations of 1.5% three months ago. A significant downgrade, but also not a tale of the sector standing on the edge of a precipice.
There is still some good news around and strong growth remains in prospects for a number of manufacturing sectors. Here are a couple of notable exceptions to our downward revisions…..
The transport sectors have long been a source of positivity, and this looks set to continue for both motor vehicles and other transport. Growth in car production has continued apace and strong domestic demand has been complemented by an improving export picture. Although the motor vehicles sector does have high levels of exposure to China – which presents a risk to growth – a slow and steady turnaround for the European consumer, combined with new models moving into production in the next few months, should see growth sustained throughout 2015.
Similarly, output in the other transport sector continues to expand to meet existing orders backlogs. After a strong second quarter we have revised up our forecasts to show growth of 10.4% this year.
Although UK construction growth has slowed at the start of 2015 compared with 2014, which may be something of a concern for the non-metallic minerals sector, longer term forecasts suggest the construction recovery should continue to broaden, providing a good grounding for growth. We expect output in non-metallic minerals to increase by 3.1% this year and 2.2% in 2016.
However, most of our sector forecasts have moved in the other direction. The big movements on the quarter are concentrated in mechanical equipment, metals and food & drink.
The strength of the UK economy has eluded manufacturers in sectors serving the oil and gas supply chain. Manufacturers of mechanical equipment continue to report weak demand in our latest Manufacturing Outlook survey.
The sector had a very weak start to the year with output falling 6.6% in q1 and 2.0% in q2. Looking ahead, as well as the impact of weakness in demand from oil and gas, the sector is also somewhat exposed to a slowdown in demand for investment goods from China. We now expect output in mechanical equipment to contract by 11% over 2015 as a whole.
In more commoditised manufacturing sectors – for example basic metals – the strength of sterling has been hurting margins on exports. Its challenges have also been compounded by weak demand, and subsequently increased metals exports, from China. This has pushed down the price of metals, and made margins extremely challenging for manufacturers in the sector. Overall we expect output to fall 2.9% in 2015.
While the food and drink sector should benefit from p ositive UK consumption trends. Supermarket price wars have put pressure on margins for some – dampening the first half of the year, and meaning our forecast shows a dip across 2015 as a whole – however, prospects remain positive and growth is likely to return in q3, with the Rugby World Cup poised to provide a boost.