Manufacturers ride out Eurozone turbulence says EEF/BDO

Manufacturers have been positive about output over the past three months and expect it to continue to expand over the next three months, the EEF/BDO research found. Investment balances have also remained firm, while demand for skilled staff continues to drive positive recruitment intentions. However, EEF added a significant caution that, despite the relative strength of the survey results, the continued political and economic uncertainty in the Eurozone and any possible deterioration in the European economy as a result, may yet impact significantly on manufacturers' confidence and prospects. EEF chief economist Lee Hopley, said manufacturers were holding steady and displaying resilience and agility. "Despite the problems closer to home they are building on successful strategies to access growth opportunities in new markets. "However, the main risk to activity is still rooted in the on-going Eurozone crisis." Tom Lawton, head of manufacturing at BDO LLP, said that success over the next few years would depend on how quickly focus could be switched to exports to emerging growth markets and this would require a shift in thinking among many manufacturers. Output and order balances strengthened further in the second quarter of 2012 from the low seen in the last quarter of 2011. A balance of 20% and 17% of manufacturers' reported output and orders had grown respectively, up from 19% and 13% last quarter. UK orders improved with a balance of 9% whilst export orders remained steady. Most sectors reported a stronger quarter than in the first three months of the year with 'other transport' remaining the strongest on the back of demand from civil aerospace and motor vehicles remained strong ahead of new models being introduced in the autumn. Investment balances weakened slightly but remained positive but smaller firms fear that cash flow could be a problem. Recruitment intentions remained strongly positive, particularly among small firms. Looking forward, expectations for the next three months are generally strong but after the sharp contraction in manufacturing output at the end of last year, the sector is forecast to show a small year-on-year contraction for 2012 of -0.1% with GDP growth of just 0.2%. The recovery is forecast to gain further momentum through the latter part of this year and into 2013, barring any further shocks with EEF forecasting manufacturing growth of 2.2% in 2013 and GDP growth of 1.8%.