Some cautious optimism despite machine tool sector slipping into recession
Published : December 01, 2008
The Manufacturing Technologies Association's (MTA's) latest forecasts show that the downturn is hitting the machine tool market in the UK. However, some of the end-user sectors are still showing good levels of activity and this is expected to temper the size of the downturn.
Demand for machine tools in the UK is forecast to fall by -5% in 2008, by -14% next year and a further -10% in 2010 (all figures are compared to the previous year). By historical standards, this represents a relatively modest downturn; in making the forecast MTA have identified some positive factors such as lower interest rates, the weak £ (many machine tool purchasers in the UK are exporters who will benefit from the weak currency) and the fact that order books are reasonably strong which will help to keep sales at a good level in the short-term.
Against this, of course, is the weakening economy in the UK and, perhaps more importantly, in some key export countries, the sharp downturn in the motor vehicle sector (although the latest investment intentions data from the CBI for this sector is actually positive) and financing problems for smaller companies in particular.
At its recent Forecast Seminar, Members of the MTA heard Andrea Boltho and John Walker from Oxford Economics (who produce the machine tool forecasts for the Association) describe the prospects for the global economy over the next few years. A recession is inevitable, but it is still unclear how long and deep it maybe.
In the UK, the downturn has been consumer led, with high oil and food prices coupled with the effects on wealth from falling house prices and stock market values, leading to an increase in savings in the economy. All this has led to a cut in consumer spending across the economy.
The results of the Manufacturing Technologies Association Quarterly Trends Survey for the 3rd quarter of 2008 support the view that the downturn began during the summer, with a sharp downturn in confidence coupled with a significant decline in orders.
The key points of the survey, which had 101 respondents from across the Association, were:
Order intake was -6.1% lower than in the 2nd quarter of 2008, with all three sections of the association reporting a quarter-on-quarter decline in business.
The percentage balance for business confidence across all the respondents (see note 2) in the 3rd quarter of 2008 fell to -81%, with the 2 sections covering suppliers of machinery reporting their most negative outlook since this question was first asked in 1983!
Expectations about business in the 4th quarter of 2008 are for a further reduction in order intake of -3.8%.
MTA Statistician, Geoff Noon, commented, "The results of our trends survey reflect the impact that the problems in the wider economy have had on our sector over the past few months. Until the middle of the year however, order books were still growing, so our outlook for demand, which is based on deliveries of machines rather than order intake, should hold-up into the New Year. After that, it seems inevitable that there will be a downturn in machine tool demand in the UK, but various factors do point to this only being a moderate recession for the manufacturing technology sector. The only problem with this forecast is that previous history suggests that we don't do modest recessions, so the risks would seem to be concentrated on the downside".
Notes to editors:
1. The MTA Quarterly Trends Survey has been running since the end of 1979. It is divided into three sections (Machinery Manufacturers', Machinery Importers' and Equipment Suppliers) reflecting the membership structure of the association - the trends above are consolidated across these three sections.
2. Percentage balance is the percentage saying they were "more confident than 3 months ago" minus the percentage saying they were "less confident than 3 months ago".
3.The MTA Quarterly Trends Survey is one of a portfolio of surveys in which members of the association can participate. These provide useful indicators of industry trends and/or offer the opportunity for participants to benchmark their business against the industry situation.
