ITEM Club comments on today’s industrial production and trade balance figures

9 April 2013

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s industrial production and trade balance figures

  • February’s increase in manufacturing output looks deceptively positive, but manufacturing is still on course to detract from growth in Q1
  • Weak demand in the Eurozone is behind most of the manufacturing sector’s woes
  • UK firms have started rebalancing towards faster growing emerging nations, but this is likely to be a slow process

“February’s increase in manufacturing output looks deceptively positive. But downward revisions to already weak output in January imply that manufacturing is still on course to detract from overall growth in Q1. With construction output also likely to have fallen, we are again reliant on services to bail us out. The chances of GDP declining again in Q1, taking the UK into another technical recession, are not far off 50/50.
 
“The fact that exports to EU countries fell by more than 3% in the three months to February supports our view that weak demand from the Eurozone is behind most of the manufacturing sector’s woes. This has also been corroborated by unsupportive PMI surveys, which are consistently pointing to a fall in export orders.
 
“The heavy dependence on the Eurozone for exports means that near-term prospects for manufacturers are poor. UK firms have started rebalancing away from their traditional export markets towards faster growing emerging nations, but we are starting from such a low base that it will take time for this to have much of an impact.”