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MTA Forecast Seminar 2021

Delegates to our annual Forecast Seminar this week heard discussions of the prospects for global economic growth, the varying prospects for the key industries and our latest forecasts for the UK machine tool and cutting tool markets, along with the Autumn edition of the global machine tool forecast. The event was kindly sponsored this year by our colleagues at Marsh Commercial.

The opening presentation by Ben May, Director for Global Macro Research at Oxford Economics looked at what to make of the recent gloomy economic news in the light of four key shocks that have hit the global economy - the Delta variant of the Coronavirus, supply chain disruptions, inflation and problems in China around Evergrande and cuts to production in the face of energy shortages. He also looked at the key features of the post-pandemic world.

In summary, he noted that while these various issues have led to a downgrading of their forecasts, most of this “lost” activity will be caught up by stronger growth in 2022. Consumers are likely to be the main driver of the recovery but they are cautious about investment where recent strength is more of a revival than a boom. While inflation may be an issue for longer than first hoped, it is not a sign of the world entering a period of stagflation (high inflation combined with low or negative growth). Fiscal policy will be in contraction mode in 2022 as the policy responses top the pandemic are unwound, so it would be a policy mistake to raise interest rates, at least in the short-term.

The middle session of the seminar was, as always, a look at the global industrial scene and considered whether we are at a turning point in the post-pandemic recovery. Generally, we are seeing strong industrial demand but this is being hidden by a weakness in production which is constrained by a variety of supply-side issues. These problems are of historic proportions but although the surge in demand is strong, this is not untypical of the recovery phase of economic cycles. These difficulties appear to be most acute in Europe - for example, Germany has seen a significant build up in backlogs (in part at least because of the large share of industry accounted for by the automotive industry), while in the USA orders and shipments are more in balance, although not completely so. These problems are most acute in the industries which are the most likely to be customers of the manufacturing technology industry.

The automotive industry has seen the biggest hit from the semi-conductor shortages and the European aerospace industry is lagging behind the improvements seen elsewhere in the world - this sector in the US is helped somewhat by the defence side of this industry.  In the UK, there should be some support from the super-deduction policy but unless this is extended after March 2023, there will be a period of payback because of investment having been drawn forward to benefit from this incentive. Globally, machine tool orders are back to their pre-pandemic level but not yet to the peak we saw in 2018 and, with the exception of Italy, the recovery in the European market looks to be delayed until 2022. Finally in this presentation, Jeremy Leonard, Director of Industry Services at Oxford Economics, looked at the impact of the move to electric vehicles (excluding all types of hybrids) on the demand for machine tools and at the future for various elements of Industry 4.0 in a post-pandemic economy.

In the final presentation, Geoff Noon, the MTA’s Statistician drew all this together and highlighted how MTA members can use these forecasts. This includes thinking about the pattern of the industry mix among customers and whether demand from those companies is driven by their investment decisions or their level of output. As is often the case at this time of year, the impact of data revisions is a key topic and after running through three issues in this area, he looked at the likely impact of the super-deduction allowance on the investment outlook (which is the main driver of the machine tool forecast) and the output related data for our key end-user industries which underpins cutting tool demand.

Our surveys show that the UK machine tool market fell by -25% in 2020 in the face of the pandemic and we expect only a marginal increase this year;  this is based on the data we have for the first half of the year although it could be a little stronger if the later months show more of an increase in deliveries. Most of the recovery comes in 2022 with growth of +24% in our forecasts, followed by +4% in 2023 and -1% in 2024.  The latter couple of years are affected by the ending of the super-deduction scheme although there are risks in both directions around the exact timing of the deliveries under this scheme.

For cutting tools, we estimate that the market fell by -24% last year and like the machine tool market, we expect only a small amount of improvement in 2021 with +4% in the forecast based mainly on the data we have for the first half of the year and estimates for July and August.  Partly as a result of the relatively slow easing of supply chain shortages and only a gentle recovery in the aerospace industry, we expect growth of only +9% in the cutting tool market in 2022 and that this will ease to +3% the following year and -1% in 2024. The latter is also driven by the ending of the super-deduction scheme but in this case the effect is indirect as it feeds through from a fall in output mainly in the machinery industry which benefits most from this scheme.

This presentation concluded with a quick whizz around the world looking at the global machine tool forecast and highlighting some recent orders trends for Germany, Italy and the USA alongside the PMI data series in Europe, Asia and the Americas.

MTA members can download the MTA UK Market Forecast document, the Global Machine Tool Forecast with its detailed appendix tables and the presentations from the Forecast Seminar from the MTA web-site at https://www.mta.org.uk/members-area/mta-forecast-documents - please note that this is in the members only area of the site so you will need your login and password details.  At the moment, we only have the slides from the presentations available but we will be adding notes to these over the next couple of days, so if you want these versions of the documents, please check back next week.