Today we published our 2017q4 Manufacturing Outlook survey, in partnership with BDO.
Our survey, covering the final months of the year, complete a clean sweep of positive balances across our main output and orders indicators in every quarter in 2017.
Here are 9 headline facts from the report.
34% - the balance of companies reporting increased output in the past three months
In the past three months a net balance of 34% of manufacturers reported an increase in output levels, unchanged from the previous quarter and better than survey respondents had anticipated three months ago. This marks a substantial turnaround from industry’s performance a year ago, when the average output balance across the year was -3%.
Positive output responses were also broad-based across the sectors covered by our survey – a trend that has again been consistent throughout 2017.
21 percentage points - the gap between exports and UK orders balances
The rebound in global manufacturing activity is a large part of the positive output story. An increasing balance of manufacturers have noted rising sales this year – particularly overseas customers.
A balance of 33% of manufacturers saw another quarter of increasing sales to export customers, unchanged from last quarter, but advancing the lead over UK sales. Notable sector strengths can be seen in investment goods (e.g. mechanical equipment and electronics), as a revival in manufacturing activity globally is driving a surge in capital expenditure, particularly in the US and European markets. The persistent weakness of sterling will also be providing some support, but as we’ve said before this is, by no means the only factor.
3.6% - global growth forecast in 2017
This tallies with the improving expectations for global growth. Forecasters’ predictions of strengthening world GDP growth have been frustrated in recent years, leading organisations to be revising down their forecasts.
With eurozone growth turning a corner this year, together with resilience in the US, an acceleration in growth in China and a return to growth in commodity exporting countries, organisations such as the IMF (see chart) have been more optimistic about prospects. We share that optimism, and expect global growth of 3.6% this year.
81% - proportion of companies identifying at least one export market supporting growth
A reflection of the pick-up in economic growth and sentiment across multiple market, our survey shows that over four-fifths of manufacturers have seen improving demand conditions in at least one major export market in the past three months.
Europe has consistently been the stand-out export market, with around 60% of respondents noting good demand from European customers in each quarter this year.
10 years – the last time output and all orders balances were positive
Our survey has tracked the domestic and international ups and downs experienced my manufacturers since the financial crisis.
The clean sweep of positive responses across all our output and order (total, UK and export) indicators this year is a rarity and one not seen since 2007.
Five consecutive quarters – the recent run of positive price balances
While the upbeat nature of our survey responses will be regarded as some much needed good news for the UK economy, monetary policy makers will be paying particular attention to the evolution of prices reported in private sector surveys.
Our Manufacturing Outlook survey has reported five consecutive quarters of positive balances on UK and export prices. The move into positive territory was initially a response to the rising input cost pressure which started to build after sterling collapsed last summer. However, a new round of pressures is emerging as oil and other commodity prices stage a recovery, and these are passed on to customers as manufacturers seek to protect margins.
20% - the balance of companies planning to increase investment
The market upturn in demand prospects is, inevitably, creating some capacity challenges. There has been some caution in investment plans, in part a consequence of uncertainty following the EU referendum.
But more manufacturers are now pushing ahead with additional capital expenditure to meet current customer requirements. The investment intentions balance hit 20% - the highest level in more than three years, with all sectors positive about their investment plans in the next 12 months.
11 quarters – the last time the business confidence indicator was higher
Given the positive outlook for sales, rising production levels and stronger global prospects, it is unsurprising that confidence levels have strengthened further. Looking to the next 12 months, confidence edged to a score of 6.7 out of 10; the highest level seen since the beginning of 2015 and a massive increase on the 5.3 score recorded immediately after the referendum.
Companies, like everyone, are less assured about the outlook for the UK economy, with expectations for overall growth in the next year continuing to lag firm-level expectations.
2.1% - our growth expectations for manufacturing this year
We’ve revised up our forecasts for manufacturing output growth this year and next. Following a very strong outturn for production growth in official statistics for 2017q3, our projections are for output to expand by 2.1% this year and 1.4% in 2018. This would make 2017 the strongest year of growth since 2014 and in both years that would see manufacturing growing faster than the whole economy – our forecasts for which are unchanged at 1.5% and 1.3% in 2017 and 2018 respectively.