24 July 2018

  |  CBI Scotland

Press release

Manufacturing output grows but faltering exports a concern - CBI Scotland

Read the latest quarterly results from the Industrial Trends Survey for Scotland. 

Manufacturing output grows but faltering exports a concern - CBI Scotland

Overall output expanded in the three months to July, having fallen in the first quarter, according to the latest CBI Industrial Trends Survey for Scotland.

The survey reveals mixed fortunes for domestic and export demand. While domestic orders declined for a second consecutive quarter, albeit at a slower pace, the volume of export orders flat-lined, having grown steadily since the start of 2017.

Looking ahead, firms expect output to remain broadly stable in the three months to October, with domestic orders expected to stabilise but export orders expected to fall, marking a challenging few months for exporters.

Orders or sales and plant capacity were cited as the factors most likely to constrain output in the coming months, while political/economic conditions abroad remain the most likely factor to weigh on exports.

In line with this more cautious mood, optimism over export prospects in the year ahead deteriorated sharply, the first fall in two years. This was mirrored by a more modest decline in optimism about the general business situation and is reflected in investment intentions which dropped across the board.

Tracy Black, CBI Scotland Director, said:

“Manufacturing remains a vital sector for the Scottish economy and it’s discouraging to see such pessimism among firms as we move into the second half of the year. While it’s great to see that overall output rose on the previous quarter, the survey paints a particularly gloomy picture for exporters.

“While exporting has been a strength in previous surveys, with just seventy companies accounting for half of all exports, we’re all too aware that Scotland simply isn’t capitalising on its vast exporting potential.

“With Scotland’s economy already stuttering we need firms to have the confidence to grow and invest here. Alongside greater certainty on Brexit, we need the UK and Scottish Governments to work with business on building a tax and regulatory environment that clearly signals that Scotland is open for business.” 

Key findings:

Activity – past three months

  • The volume of output expanded (+10%), having fallen in the previous quarter (-20%)
  • The volume of total new orders was reported as having increased (+13%), following a decline in the three months to April (-7%)
  • The volume of domestic orders was deemed to have fallen in the three months to July (-12%), though less sharply than in the previous quarter (-18)
  • The volume of export orders was flat (0%) following sustained growth for more than a year

Activity – next three months

  • The volume of output is expected to be broadly flat in the next three months (-3%)
  • The volume of total new orders growth is expected to stabilise (+3%) over the next quarter
  • The volume of domestic orders is anticipated to remain steady (-2%)
  • The volume of export orders is expected to decline (-7%) over the next three months

Prices and costs

  • Average domestic prices increased more widely (+31%) than the previous quarter (+23%), implying the fastest rate since July 2013, although prices are expected to grow more slowly in the next three months (+12%)

Business sentiment

  • Optimism about the business situation fell in the three months to July (-6%), following a steady improvement across the previous year
  • Optimism about exporting prospects for the year ahead fell sharply (-19%), following a solid improvement in the previous quarter (+36%)

Constraints on activity over the next three months

  • Companies expect orders and sales (+32%), plant capacity (+28%) and materials/components (+17%) to be the biggest drag on output, while political and economic conditions abroad were cited as the biggest constraint on exports

Investment

  • Firms expect to reduce spending on plants and machinery (-35%), training and retraining (-22%), product and process innovation (-21%) and buildings (-5%) in the year ahead.