Saturday, August 15, 2020

Manufacturers taking action in face of China slowdown

Manufacturers are increasing their vigilance in key markets in light of growing risks and uncertainty in the global economy, according to a new survey of almost 300 companies published by EEF, the manufacturing organisation.

As a consequence of the stock market turbulence in China, the shadow of crisis talks in the euro zone and the potential for further trade restrictions with Russia, economic forecasters aren’t the only ones reviewing their outlook for the months ahead.

  • 47% of companies are concerned about the possible sharp slowdown in China of which 10% are reviewing their business plans
  • 37% of companies are monitoring events more closely
  • The most directly exposed manufacturing sectors to Chinese demand are road vehicles (16% of exports to China), metal working machinery (8%) and leather goods (7%)
  • Companies in the mechanical equipment and metal products sectors are most likely to be incorporating a weaker Chinese growth profile into their business plans (17% and 13% respectively)
  • The level of concern about a China slowdown is affected by company size. The smallest companies (turnover of less than £5m) least likely to be worried and those at the other end of the size spectrum (£50m turnover +) most likely to be looking at business plan scenarios
  • Fears about Greece leaving the euro zone linger, with only 22% of manufacturers saying they are unconcerned about a re-escalation of the crisis in Greece.
  • In comparison to events in China and the euro zone, there is less concern about the possibility of an extension or enlargement of the EU’s sanctions on Russia
  • 30 per cent of manufacturers report concern along with building into business plan or closer monitoring

Commenting, EEF chief economist Lee Hopley said: “For some sectors in manufacturing the slowdown in China isn’t a new story as we’ve seen exports of vehicles to China on the slide since the end of last year. Overall, UK factories send only a small proportion of their goods to Chinese customers, but a sharper slowdown would also see a halt to growth in export sales through supply chains in Europe.

“The more widespread impact, at least in the near term, is likely to be the knock to already delicate confidence levels. The stock market turbulence made in China raises more questions about the policy reaction there and in other major markets, giving businesses more uncertainties to navigate. Manufacturers are certainly keeping a closer eye on developments, with some already taking action in their business planning to mitigate risks. Time will tell whether this takes a further toll on growth across the sector.”

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