West Midlands manufacturers have seen some of the toughest trading conditions since the end of the recession over the past quarter, according to new survey.
Manufacturers had anticipated some softening in output this quarter, but a survey by EEF, the manufacturers’ organisation, and business adviser BDO showed a more marked weakening than expected across a range of indicators.
The balance of responses on output over the past three months fell to its lowest level since the fourth quarter of 2009.
In the West Midlands, nine per cent of manufacturers reported a rise in output and seven per cent saw a rise in orders, down from 29 per cent and 36 per cent retrospectively last quarter.
Manufacturers’ margins came under growing pressure over the past three months with a balance of 19 per cent reporting a deterioration in export margins and 24 per cent seeing a further squeeze on margins on UK sales.
The balance of responses on investment intentions remained positive, but at five per cent down on the previous quarter.
Tom Lawton, Birmingham based partner and head of manufacturing at BDO, said: “The results of the survey paint a dark picture with weakening markets across the board. Inevitably Europe continues to serve as a drag on exports and even the previously buoyant emerging markets are beginning to falter. With this extremely testing global backdrop it is crucial that manufacturers remain not only lean but also nimble enough to respond to future opportunities as and when they arise. This is something that the sector has not been good at in previous recessions.
“However, it is not all bad news. Larger companies in the region that have the ability to invest are continuing to do so and smaller companies are wary of not suffering a skill shortage by ensuring that they employ the best talent. All of this in the face of worsening market conditions. This indicates that manufacturers have learnt the mistakes of the past, are investing for the long term and are preparing themselves for an upturn in the market, whenever and wherever this may occur.”
Research showed recruitment intentions remained positive, continuing the trend seen since the beginning of 2010, but had slowed with a balance of 15 per cent of companies in the West Midlands indicating they increased their employment. This was greatest amongst small firms.
Looking forward, a balance of 12 per cent and nine per cent of manufacturers expect output and orders respectively to grow in the next three months.
Richard Halstead, Midlands Director of EEF, the manufacturers’ organisation said: “The weaker global outlook precipitated by the on-going economic challenges in Europe has clearly hit home in our latest survey. Pockets of growth still remain in some sectors, but overall confidence appears to be draining away. The sharp drop in export balances over the past quarter is a particular concern given their importance to manufacturers and also our economy’s reliance on exports as a source of growth.
“However, some positive news can be taken from the improvement in the short term outlook and the continuing commitment to invest across manufacturing, as companies look to their competitiveness and market opportunities in the medium term.
“It’s encouraging to see that companies are not planning for a further deterioration in conditions as we head into the final months of the year. But, the risks of a more prolonged period of weak growth in global markets, which would continue to make economic rebalancing an uphill struggle, can’t be ruled out.”