Delegates to the MTA Spring Economic Update heard Andy Goodwin, Lead UK Economist at Oxford Economics, outline the weakness in the UK economy over the past couple of years, with the expectation of only a gentle recovery through to 2021. Despite some help from an improved net trade performance, the weakness of consumer spending has lowered growth to +1.8% in 2017 and only +1.4% expected for 2018.
Although some one-off factors such as the collapse of Carillion and the bad weather have held back the economy in the 1st period of the year and will lead to a bounce in the 2nd quarter, the overall outlook remains modest. There are signs that the pace of growth in the manufacturing sector is easing - but it is important to note not declining - and while the squeeze on the consumer from low wage increases paralleling relatively high inflation is past, there is a likelihood of some increase in savings rather than feeding directly into consumer spending.
All this comes in the context of a global economy that hit a sweet spot in 2017 that has driven strong growth. Rising oil prices are likely to cap this growth, but there is no expectation of a global reversal in activity, despite risks of an increase in protectionism stemming from the USA. Growth in the Euro-zone appears to be cooling, although again, this is merely moving from an exceptional 2017 to what will still be a good 2018.
This presentation concluded with a look at the likely impact of Brexit - a process that is complicated by the problem that we are really no closer to knowing how this will be achieved. Oxford Economics still have some sort of Free Trade Agreement as the most likely outcome (with a probability of 40%), but the chances of no deal and the UK trading under WTO rules are at 30%; other options include the UK remaining in the European Economic Area (and therefore within the Customs Union) at 20% and a 10% chance that we will remain in the European Union itself at 10%.
In contrast to the gloom around the economy as a whole, Geoff Noon, MTA’s Statistician, highlighted how well the UK manufacturing sector has been performing. We saw 2017 end more strongly than we had anticipated at our seminar last Autumn and with this momentum being carried into 2018, the forecasts for sector output have been raised, although the investment outlook is still clouded by the uncertainty over Brexit. The prospects for most of the key users of manufacturing technology remain bright with growth still to come in the Aerospace and Machinery industries, although it does appear that the Automotive industry is past its peak, with activity easing over the last 6 months.
The up-shot of these changes has seen a revision to our forecasts for the UK market in our sector; we now expect growth of around +6% in the machine tool market in 2018, although this does mean that the outlook for 2019 is now for demand to be marginally down (but by less than the growth this year). For cutting tools our expectations of flat demand this year have been revised to growth of +7% with the improved outlook for output, but we do think that this will ease to just +1% in 2019.
The event also featured a presentation on the outlook for E-mobility - the use of electric power in cars; these terms are chosen carefully because the expectation is that, in the UK at least, the principal manifestation of “electric vehicles” will be in the form of hybrids of some sort rather than pure electric vehicles. The forecast is that these will account for 43% of the car market by 2024. Globally, the take up is less – around 24% by 2024 – because of much lower use of these vehicles in the USA where low levels of regulation and lower fuel prices mean that there is less incentive to switch to electric vehicles. However, the balance between hybrid and “pure” electric vehicles is also different from the UK with the latter taking a larger (although still minority) share of the market; this is mainly driven by the push in China to go to electric only vehicles.
MTA members can access the presentations from our Spring Update on the web-site at https://www.mta.org.uk/members-area/mta-forecast-documents - you will need your login and password. We will be adding notes to these presentations next week which will help those who were unable to attend the seminar. Members can also find our Forecast Update document for the UK market and the Spring edition of the Global Machine Tool Forecast on this web-page.