A load of crystal balls

Published: 12 August 2008  04:30 PM
Source: The Engineer Online

This, perhaps, is why two such contrasting sets of predictions have landed in The Engineer’s in-box this week. In one, the Institute of Engineering and Technology’s annual skills survey finds that of its 400 respondents, 63 per cent are expecting to recruit staff this year, with a similar proportion citing expected business expansion as the reason for this. Chief executive Robin McGill sings the praises of the vibrancy and resilience of the engineering and technology sectors, and says that there is a strong demand for skills; he also echoes the Confederation of British Industry’s recent call for better science tuition and improving the profile of engineering in schools.

On the other hand, the KPMG Business Outlook Survey displays all the cheerfulness of of a black-clad teenager who’s been told he can’t go to see his favourite doom-monger band. Studded liberally with words like ‘bleak’, ‘poor outlook’ and ‘deterioration’, the report states that only 46 per cent of its respondents expect a rise in activity, with ‘a record 27 per cent’ expecting a slowdown. The difference of 19 compares poorly with the figure from this time last year, which was almost 60, it says.

KPMG respondents also expect their raw material and utilities costs to rise faster than last year, and the rate of growth of revenues expected to fall (note that this doesn’t mean that revenues are expected to fall; let’s not get too gloomy here, we’ve all got to get up in the morning). In stark contrast to the ebullient McGill, KPMG’s chief economist Andrew Smith warns ‘UK manufacturing is staring recession in the face’, saying that the perceived pessimism outweighs the expected effects of more expensive credit and price rises, and adding that profits, employment and output are all under pressure.

Confusing, isn’t it? They can’t both be right. The current downturn is a complex thing, with higher oil prices (although no two economists agree why they’re so high) combining with high food prices (possibly connected with demand for biofuels, though again no-one is sure) and the knock-on effects of American mortgage companies deciding it was a good idea to lend money to people who couldn’t pay them back. Is all of that going to affect manufacturing? If it does, are the high-end technology sectors likely to have a degree of immunity? And if we we’re supposed to quake in our boots over the KPMG survey, can we take some comfort from the credibility of last year’s optimistic numbers, which were obviously, hopelessly and horribly wrong?

It is difficult to quantify the effect of overly-cautious business decisions brought on by panic and fear in the marketplace. Prices are definitely rising in all sorts of areas, and it’s easy to see how a reluctance to pay for expensive air travel, for example, might have a knock-on effect on the civil aviation sector. But McGill is quite correct about the demand for engineers, which doesn’t appear to have abated. To bring in another talking head, the former editor of The Economist, Bill Emmott, said in the Guardian yesterday that the only thing that would bring the economy to a screeching halt is a sudden collapse in demand from China and India; which he says is extremely unlikely.

You can never be sure about these things. But we prefer to remain optimistic. The engineering sector has ridden out hard times before and there’s no reason why it shouldn’t do it again. With all the attention on Beijing at the moment, it seems appropriate to quote that hoary old Chinese proverb: we’re living in interesting times.

Stuart Nathan

Special Projects Editor

Comments

I understand that right now the waiting list for power stations is six years? You can't get earth mover tyres for love or money. Or aeroplanes. So it depends on whether you've got good management, innovative products, which we don't always have because we (the UK) don't fund them properly or respect creativity. Add a half decent workforce and, barring Armageddon, there is no problem. The markets and the business is out there. Get it and there is no problem. It's not just about services either- as an American said- you can't base your economy on holding doors open for each other. The recession will be as bad as we make it.
Bill Taylor: 29 Aug 2008

Most UK engineering companies have to compete in a global market, the ones which remain have survived because they are competitive and supply good quality products. The demand for high alloy tool steel (my sector) is still buoyant, which suggests people are still making products in Great Britain. It could be tin cans or cars, but the demand is still there. On an individual note - its prices for food, gas, electricity and oil which have made a big impact on my budget. It’s the luxury items we will forsake – i.e. new white goods, furniture etc – that will hit the retail sector and most of those goods are imported from the Far East!
P Harvey : 14 Aug 2008

There is not enough time or space to make a full comment here but to say I believe the UK is in for a rough time of it over the next couple of years. This will impact on all sectors of the economy, however I do believe that the engineering sector will fair better than most due to lessons learnt through hard times it has endured in the recent past. But when you learn little facts like the exposure of sub prime assets in America is only about one per cent of their GDP, but in the UK it's about fifteen per cent, you begin to realize that our country could be in quite deep dodo. If any one out there can prove this to be wrong I would be very pleased. So I thought your article very good but people need to understand that times are tough and over the next couple of years are going to get tougher.
Peter Hayward: 14 Aug 2008

Interesting isn't it that - due to manufacturing now making up such a small part of the overall economy - the government only seem interested in bailing out the finance sector (Northern Rock) and the building sector (suggesting kick-starting the housing market by deferring stamp duty payments on new purchases)? We - and they - should be celebrating the performance of the manufacturing sector. I work in manufacturing and - as a road-based Applications Engineer - visit many customers in all sectors of manufacturing and the general feel at present is that they're busy and have healthy order books. The doom and gloom merchants (including the government and the media) seem more interested in guarding their backsides and selling papers than looking on the bright side and perhaps welcoming this news. There are no guarantees I acknowledge but - had Mrs Thatcher not destroyed the mining industry etc back in the eighties and had successive governments done more to support manufacturing in the past, we might be in an even better position to ride the present wave of uncertainty on the world markets! Not everything needs to be "cheap/cheerful" from China and India, but countries DO need strong manufacturing bases to survive long term.
Alistair Brodie: 14 Aug 2008

Both forecasts can be right. The quality and quantity of engineering does not follow the fortunes of manufacturing and the economy. Like oil, engineering is everything. Some of the best engineering may be associated with horror or commercial failure such as Hiroshima and Concorde. Declining sales of goods, travel and leisure will be grim for shop floor operatives, salesmen, estate agents et al, but engineers must be retained, and recruited, as a future investment. The current climate of shortage of energy and food will create trillions of dollars worth of business, high in engineering content, for renewables, biofuels, food, water procurement etc. The future is bright; the future is engineering.......even if economies are in for the high jump.
peter field: 14 Aug 2008

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