This week saw the MTA Forecast Seminar move on-line although it retained its usual format of having 3 presentations around the topics of the macro-economic situation, the global industrial outlook and the specific forecasts for the manufacturing technology industry.
The outlook is, of course, dominated by two issues – Covid-19 and Brexit – almost to the exclusion of any other more “normal” economic factors. They also divide neatly into short-term (Covid-19) and more medium term (Brexit) impacts which were addressed by the three speakers. At a macro-economic level, the UK shared with Spain the dubious honour of being the worst affected country in terms of the hit to GDP in the first half of 2020, although it is not quite as bad as this seems for technical reasons related to the measuring of government output.
It is clear that the recovery from the low point, while initially strong, appears to be levelling-off and this will not be helped by the return of restrictions at various levels over the next few months. The additional funds announced by the Chancellor may help but it is clear that we are in for a period of higher unemployment.
Turning to Brexit, it is clear that the damage to the UK economy has already been baked in by the decision to leave both the single market and the customs union although we won’t see that until the transition period has ended. Analysis by Oxford Economics (OE) suggests a loss of around 3 percentage points on GDP is a free trade agreement is reached with something approaching -4% being likely in the event of a no-deal. These are, respectively , the 2nd worst and worst scenarios from a range that were developed by OE at the time of the referendum.
The 2nd session drilled down to the sector level with a focus on those area of most interest to MTA members. At the high level, the rebound in industrial activity is well ahead of what we saw in the 2008-09 financial crisis, with pent-up demand playing a role in this, especially for consumer goods industries. However, there are signs that this bounce won’t last and the outlook for investment is particularly concerning; this cycle was already looking weak before the impact of Covid-19 on confidence and demand.
An analysis of the speed and extent of the recovery in the industry sectors at a global level showed the group that are most important to suppliers of manufacturing technology (MT) lagging behind the rest of the industrial groups. The MT-intensive sectors face issues around demand, liquidity and the supply-chain that make them among the weakest in the economy. Among the leading industrial nations, the UK has one of the weakest recoveries as a result of the impact of Brexit.
Depending on the outcome of the negotiations, some sectors will face significant extra costs from both tariffs (which may not apply) and non-tariff barriers and extra administration (which almost certainly will apply); on top of this, changes in regulations on either side of the new border will only add cost and complication to UK-EU trade. Supply chains are vulnerable to trade disruption and the automotive industry is among the worst affected in this context.
For the MT market, the sectoral mix of different economies will pay a role in determining the shape of demand. For example, Germany, with its concentration of activity in the automotive industry will take longer to recover than France which has a more even distribution of industries and a (relatively) larger precision instruments sector which is an area likely to see a more rapid upturn.
There is one small surprise in that while a fall of around one-quarter in the machine tool market in the UK for 2020 is a large number, it is towards the lower end of the range across the world. However, Brexit means that while others will see a relatively strong recovery, albeit it one that takes some time to get back to pre-Covid levels, we only expect growth of around +11% in the UK in 2021, with the pace of growth tailing off in the following years. The forecasts for cutting tool demand in the UK are similar at -23% in 2020 and +10% for 2021 and while we might have expected the recovery here to be stronger, the high level of impact on key end-user sectors holds back demand.
The UK automotive industry has already lost the Ford engine factory in Bridgend and Honda will leave in 2021. Even on the most optimistic outlook, the remaining factories don’t see enough improvement to outweigh the impact of Covid-19, Brexit and the loss of these factories, so output is not expected to get back to even 2019 levels within the forecast horizon. Covid-19 has also dealt a harsh blow to the aerospace industry with the collapse in global air travel, so the prospects there also look weak, while the loss of competitiveness from Brexit works with weak demand to hold back the recovery in the engineering and metal goods industries.
MTA members can download the forecast documents and the presentations from the MTA web-site at https://www.mta.org.uk/members-area/mta-forecast-documents - you will need your username and password to login to access these files.