The MTA’s Annual Forecast Seminar was held at the European Headquarters of Yamazaki Mazak in Worcester on 22 October.
John Walker, Chairman of Oxford Economics, opened the Seminar on an optimistic tone. John began his analysis of global trends with the United States where, with the threat of a politically driven default at least abated, the underlying strengths of the US economy are strong and a recovery fully under way. Interestingly he highlighted that one of the reasons for this is that US Bank lending has picked up in a way not seen on this side of the Atlantic. Investment in manufacturing is in fact at levels higher than their pre-recessionary peak and costs are relatively low with a competitive exchange rate, a stable cost of labour and falling energy prices.
Emerging markets gave more cause for concern. While John didn’t share some alarmists’ concerns that a banking crisis in China was imminent, John’s prediction was that the country will see a slowdown driven by diminishing returns from capital investment and the changing demographics of the country.
In contrast to China, where the Government is quite sanguine about a more sustainable rate of growth, the Indian Government is still struggling to promote growth. The country’s reform of its economic bureaucracy is well off track which accounts for its poor position in league tables for ease of doing business; a problem that also afflicts Brazil and Russia.
John was positive about the prospects for Japan and very supportive of the policies being brought forward by the new Government which include measures to stimulate the economy through growth of the monetary base, a fiscal stimulus and bringing about a competitive exchange rate.
He was more negative about the prospects for Europe. So far this year the numbers start to point in the right direction across the continent but there are major risks with the financial services sector which are not being properly addressed. John compared the rigour of the respective stress tests carried out in the EU and the US. While large proportions the of US Banking sector failed their tests and have had to take remedial action, the EU exercise passed the Bank of Cyprus as ‘fit’ months before it collapsed. He also highlighted the huge competiveness issues faced by southern Europe.
John then turned closer to home saying that all the signs are that the UK has turned the corner. The GDP and PMI numbers seem pretty clear about that. There are stronger household finances, fear of unemployment is falling, the housing market is showing positive signs and surveys are showing stronger corporate confidence. He expected a small uptick in wage growth and a fall in inflation to lead to a recovery in consumer spending.
There was also positive news on corporate investment intentions (and corporate profits) as companies looked to use the balance sheets they have consolidated in recent years. John was also positive about the UK’s export performance as world trade expands in the next few years, not least in response to growth in the US.
The principal risk in the UK he looked at was that interest rates rise faster than anticipated, but he tended to think that the BoE would be relatively dovish.
John then turned to a presentation about the aerospace sector. He started with a note of caution, pointing out that airliners, for which there is a huge demand, were massively important but also slightly out of sync with the rest of the sector which is experiencing some troubles as military budgets fall.
He said the market for new airliners was driven by the high oil price (because they are more fuel efficient) and by the growth of the global middle class. These new consumers, many in Asia, are predicted to drive demand for air travel up by 4-5% per year. As a result he reported that the airlines are likely to need some 35,000 new aircraft in the next 20 years.
He asked if the duopoly would ever be broken to attack that market. John’s take was that the strategic risks to Boeing and Airbus were small. Firstly he said that the emerging global middle class are keen consumers of foreign brands and secondly that safety would remain a concern. However he thought that there were risks to ‘western’ (actually US/UK) dominance of the market in the supply chain.
John then handed on to Geoff Noon to look at the sector trends and the machine tool market in the UK and around the world.
Geoff started with the automotive sector where improvements are being seen around most of the world not least in the UK. Globally in the machinery sector the story is one of growth although it is now less concentrated in Asia than in the past, as the Americas pick up momentum.
Geoff then turned to a list of hotspots in UK manufacturing. Excitingly all of these were in markets which are significant consumers of manufacturing technology. He looked at these end user markets highlighting the continuing strength of aerospace and automotive. Geoff also touched on UK manufacturing productivity arguing that the UK has become more productive in the sectors which are key markets for manufacturing technology.
Our thanks to John and Geoff, and particularly to Yamazaki Mazak for hosting the event and to Close Brothers Asset Finance for kindly supporting it.
Full details of the Machine Tool Market Forecasts for the UK and internationally are available to MTA members in the Members Area of the MTA Website.