Today we publish our sixth annual Executive Survey, looking at manufacturing expectations for 2017.
As Maddie blogged on Friday, our 2016 Executive Survey showed that risks had become more prominent for manufacturers. But the sector continued to press ahead with investment and innovation to create new growth opportunities.
So what do manufacturers expect from 2017?
- Despite unpredictable economic conditions, manufacturers remain focused on delivering long-term growth strategies in 2017.
- These actions are expected to pay off in terms of productivity and sales and firm-level indicators remain strong.
- Whilst manufacturers are confident about their own performance, they still have risks firmly in their radar.
Long-term goals are still front and centre of manufacturers’ minds
With 2016 now over, the new year ahead promises to bring its own set of fresh challenges – Brexit, Trump presidency and elections in Europe to cite a few. Yet through these uncertain times, manufacturers remain focused on delivering ambitious growth plans in 2017.
There is an emphasis on innovation as a means to boost productivity and enhance competitiveness. Manufacturing plays a key role in the UK innovation landscape and this effort is expected to strengthen in 2017, with firms engaging in process innovations, introducing new products to the market and embracing fast-moving changes in technologies – as part of the 4th industrial revolution.
While the slowdown in world trade is still looming large, UK manufacturers are far from apprehensive and four in ten survey respondents say they will be diversifying into new export markets in 2017. Manufacturers are realistic about how difficult this might be, and three-fifths cite it as the most challenging action to deliver in 2017.
Firm level expectations remain strong
Actions to achieve growth will translate into positive outcomes at the firm level. Around half of manufacturers expect an improvement in terms of productivity.
While manufacturers are realistic about UK and global economy conditions, sales expectations remain in the black. Firms expect sales in the domestic market to improve from last year’s modest performance. In the export front, sales to EU and non-EU markets are expected to pick up, reflecting brightening demand prospects overseas and support from the persistent weak pound.
Consistent with the boost in demand, employment and investment are set to hold up in order to increase capacity.
The fly in the ointment is weaker profit margins, reflecting intensified pressure on input costs from the sterling depreciation and the recovery in oil prices.
Risks are still looming large
Yet it won’t be plain sailing and manufacturers are realistic about the challenges ahead. This year, almost half of manufacturers see more risks than opportunities, and this proportion is higher than the last couple of years.
Brexit has clearly worsened the balance of risks to manufacturers’ business plans. On top of manufacturers’ concerns are Sterling movements, which will pose the most significant threat to companies going into 2017. This reflects the potential impact from the pound depreciation and volatility on business costs, pricing strategies at home and abroad and, ultimately, profit margins. In addition to the sterling depreciation, the recovery in oil prices from a protracted two-year slump will heighten upward pressures on input costs. Putting the EU referendum to one side, extension in payment terms continue to pose a threat to manufacturers, particularly those in the upstream sectors such as the metals industry.
Concerns about the world economy are not abating. Reflecting the slowdown in world trade since the global downturn, manufacturers remain concerned about prospects in major markets in the year ahead.
The full 2017 report is available here. We will be blogging and tweeting about key findings this week so stay tuned.
Don’t forget the EEF National Manufacturing Conference will be taking place in London on Wednesday 22nd February 2016. The event brings together politicians, senior industrialists and manufacturing leaders from across the UK to discuss the critical challenges ahead and how to make the UK the best place to manufacture. Book your place here.