23 July 2012
EEF downgrades manufacturing outlook
A mid-year economic forecast update from the manufacturers' organisation EEF has further revised down the outlook for manufacturing in 2012 to -0.3% (from a previous-0.1%) as the uncertainty in the eurozone, the UK's main export market, has continued to bite.
As part of its update, EEF has also published economic modelling which looks at positive scenarios for recovery, but also the negative impact on the UK economy and manufacturing of a break up of the eurozone and a subsequent credit crunch.
EEF chief economist Lee Hopley, said: "The estimate for second quarter growth is again unlikely to flatter the UK's economic performance. But the bigger question is where we go from here. Our forecast scenarios show the importance of bringing greater confidence and certainty to the private sector. The rebalancing process would be kick-started if firms were to push ahead with investment plans.
"But our forecast also shows the risks from another big shock such as a euro break up or significant deterioration in credit conditions for firms and households. Either event would knock the economy for six once again and further delay the onset of any green shoots of recovery."
According to EEF's central forecast some stability should return in the second half of this year leading to a resumption of modest quarterly growth in GDP, whilst manufacturing activity should step up a gear as we enter 2013. The improving prospects for 2013 will continue to be driven by exports which are forecast to increase by 4.1% next year, mainly to markets outside the EU.
In its upside scenario EEF sees confidence return and the recovery private sector investment finally materialise. This would provide a much needed boost to the economy and rebalancing. Pulling forward business investment growth would see overall GDP growth come in at a stronger 0.4% per cent and 2.3% per cent in 2012 and 2013 respectively and put us on a more competitive footing in the longer term.
Under the exit scenario where a Greek default spreads to a break up of the eurozone EEF estimates that the knock-on impact on UK manufacturing would be a drop in output of 1.3% in 2012 and 4.6% in 2013. However, exposure to eurozone demand varies markedly within manufacturing. For sectors such as investment goods and automotive markets outside Europe have been much more important in driving growth in the past two years.
Furthermore, according to EEF's modelling if this were to lead to a tightening of credit conditions to the extent seen in 2007 and 2008, EEF estimates that this would wipe out the benefits of projected increases in business investment, with GDP not beginning to recover until 2014.
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