South West manufacturers have achieved healthy growth figures despite the increasingly fragile nature of the wider economic recovery.
The upbeat picture emerges from a major survey by EEF, the manufacturers’ organisation, and accountants BDO. It shows 45% of the region’s manufacturing firms taking part in the survey reporting higher output and 41% saying they achieved higher total new orders over the past three months.
However, as the economic outlook has become more uncertain, some parts of the region’s manufacturing sector are forecasting tougher times ahead, particularly with the global economic slowdown hitting export markets.
Some manufacturers, including metals and electronics businesses, received weaker orders over the past three months with concerns about the corresponding impact on output over the next three months.
The balance between caution and optimism also appears to have shifted for small companies, with less visibility around future orders keeping confidence in check for the next quarter.
EEF regional director Paul Knight, said: “Manufacturers have bucked other recent negative indicators, holding out hope that the recovery has not yet run out of steam.
“However, conditions have moved on from the broad-based recovery of the past 18 months to a more mixed picture – for example, the percentage of south west companies reporting growing order books in the past three months fell from 61% to 41%.
“The growing challenges in the global economic environment, in particular, are casting a shadow over expectations and seem to be giving some companies pause for thought when it comes to investing and recruiting.
“But there is cautious optimism that growth will continue through the rest of the year.”
Jim Brown, manufacturing partner for BDO in Bristol, added: “Despite the economic storm clouds looming in the Eurozone, the US and the UK, this was a strong survey for the manufacturing sector, showing positive balances in terms of orders and outputs in the last quarter and expected in the next.
“However, it is interesting to note the stark differences in expectations between small and large companies, with smaller companies seeming considerably less secure about the future.
“The economic turmoil in some industrialised economies is a cause for concern among all manufacturers. In particular, companies will be worried about how their order books will look in the coming months, as well as their prospects of recovering debt on sales already made.
“But whereas a large company may be in a better position to offset losses, to a smaller company the loss of an important customer can be a business critical event. In addition, smaller companies may feel less confident about the future due to the relatively short-term nature of their order profiles, giving them less visibility over future orders.
“We have seen how SMEs in Germany – the Mittelstand – have been the catalyst for German economic growth. We should not forget how important SMEs are for a strong economy – and we should ensure our smaller manufacturing companies are given the support they require to thrive and continue to be an active part of this sector.”
According to the survey’s South West results:
* Output and total new order balances were +17% and +3% respectively. Metals and electronics order balances weakened significantly compared with the previous quarter. However, motor vehicles and other transport reported positive export balances and mechanical equipment continued to hold up.
* Investment intentions remain positive at +7% although this is likely to be more concentrated in the larger companies, suggesting problems remain in accessing finance or a lack of confidence amongst smaller companies.
* Employment prospects remained positive at +14%, the sixth consecutive quarter in which companies have increased their recruitment intentions.
* There is continued pressure on companies from higher input costs, especially energy and raw materials, with margins on UK and export balances the most negative since the first quarter of 2010.
* Looking forward, the outlook for output and orders is on a par with the previous quarter. The main difference is weaker employment intentions, suggesting the uncertain economic outlook is forcing firms to review plans to take on more employees.
* EEF’s latest forecasts for manufacturing growth for 2011 and 2012 are 2.8% and 2.2% – ahead of projected growth for the UK economy of 1.1% and 2%.
