According to a survey by manufacturers’ organisation EEF, manufacturers are increasingly concerned about key export markets such as China, Russia and the euro zone in light of “growing risks and uncertainty in the global economy”.
Chinese stocks crashed last week as investors lost confidence in the government’s attempts to stem an economic slowdown. Fears over whether this would lead to even weaker demand for global commodities and luxury retail goods led to stockmarket plunges in Europe and the US.
The markets bounced back later in the week but fears over the Chinese economy remain. The potential for further trade restrictions with Russia and the shadow of crisis talks in the euro zone around Greece are other concerns.
The EEF found that 47 per cent of the 300 companies surveyed were concerned about the possible sharp slowdown in China, of which ten per cent are reviewing business plans. Just over a third of firms said monitoring events more closely would be crucial.
The most directly exposed manufacturing sectors to Chinese demand are road vehicles, with 16 per cent, eight per cent of metal working machinery and seven per cent leather goods.
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Companies in the mechanical equipment and metal products sectors are most likely to be incorporating a weaker Chinese growth profile into their business plans, at 17 per cent and 13 per cent respectively.
The EEF said the level of concern about a China slowdown is affected by company size.
The smallest companies with turnover of less than £5m are least likely to be worried and those at the other end of the size spectrum with a turnover of over £50m turnover are most likely to be looking at business plan scenarios.
The EEF said fears about Greece leaving the euro zone linger, with only 22 per cent of manufacturers being 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 plans or closer monitoring.
“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,” said EEF chief economist Lee Hopley. “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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