SME manufacturers grow at steady pace but exports slow

The latest CBI SME Trends Survey shows that small and medium-sized manufacturers’ domestic orders increased for the sixth quarter running, while export orders were broadly flat, disappointing expectations of a modest rise.

Domestic orders and output are, however, both expected to grow again next quarter at a slightly stronger pace.

“Smaller manufacturers are continuing along a steady growth path, with domestic orders and output both rising at a healthy pace. The sharp fall in the oil price should also help, pushing down the cost of production and raw materials for firms,” says Rain Newton-Smith, CBI director of economics.

Key findings for the three months to January:

• 26 per cent of small & medium sized enterprise (SME) manufacturers said they were more optimistic than three months ago, while 13 per cent said they were less optimistic, giving a rounded balance of +14 per cent, up from +9 per cent last quarter
• 32 per cent said their volume of output was up, and 19 per cent said it was down, giving a rounded balance of 12 per cent, which compares with +9 per cent in the previous quarter
• 35 per cent said their domestic orders were up, while 20 per cent said they were down, a balance of +15 per cent
• 18 per cent said export orders rose over the past three months, 21 per cent said they fell, leaving a balance of -3 per cent, compared with -13 per cent last quarter.

Despite the highest level of concern since 2013 over the impact on exports of the testing economic and political conditions abroad, smaller manufacturers are slightly more optimistic about their overseas trade prospects for the year ahead, and expect a modest pick-up in export orders.

“Stagnant export orders are dragging on the sector’s performance, mainly because of the sluggish recovery and growing uncertainty in the Eurozone,” adds Newton-Smith.

“Quantitative easing should inject some new life into Eurozone economies but it won’t be a miracle cure and businesses will have a close eye on Greece, as the new Government sets out its agenda.”

Firms continued to create more jobs in the three months to January, although the rate of growth in employment slowed for the second consecutive quarter. Employment in the sector is expected to grow more strongly over the next quarter.

Smaller manufacturers plan to invest more in plant and machinery and buildings over the next twelve months, with expanding capacity remaining an above-average driver. However over the past two quarters, uncertainty over demand has ticked up as a possible constraint to capital investment.

With inflationary pressures low, both average unit costs and domestic prices were broadly flat, the latter for the third quarter running, and export prices continued to fall.

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