1. The outlook for manufacturing and the economy Lee Hopley EEF Chief Economist

2. OVERVIEW Manufacturing sees decent start to recovery. But outlook becoming more mixed across the sector. Companies planning to invest and recruit, but confidence has begun to slide. Wider UK economic outlook much more uncertain. A raft of external factors raising the risks to growth. 2012???? Any reasons to take a glass-half-full view of manufacturing?

3. CURRENT CONDITIONS Manufacturing growth outpaces wider economy and drives export-led recovery

4. Data revisions provide new info on recession and recovery, % change in output Source: National Statistics GDP MANUFACTURING

5. Q3 GDP brings a little relief, % quarter on quarter change Source: National Statistics

6. Manufacturing still growing, % balance of change in past three months Source: EEF Business Trends Survey

7. Exports drive manufacturing orders, % balance of change in orders in past three months Source: EEF Business Trends Survey

8. Non-EU economies provide a boost, goods exports by destination, 2008q1 = 100 Source: National Statistics

9. ..but these markets still not on the agenda for some, % of companies with involvement in emerging markets Source: EEF Export Survey

10. Sector differences becoming more marked, % balance of change in output in past three months Source: EEF Business Trends Survey

11. Recruitment plans ease, % balance of change in employment Source: EEF Business Trends Survey

12. SMEs more cautious in forecasting growth, % balance of change in orders in next three months Source: EEF Business Trends Survey

13. Manufacturing growth to continue, % annual change in output Source: EEF

14. RISKS, CHALLENGES AND OPPORTUNITIES Where will the global economy go from here?

15. Downside risks … and more of them government spending cuts; deteriorating labour market prospects; access to finance; other lingering UK business environment concerns; disorderly eurozone debt default; weaker outlook for US economy; emerging markets must navigate soft landing.

16. UK outlook more challenging  Investment outlook – Investment intentions not translating into increased capex. Credit cost remains elevates and BoE credit conditions suggests worsening in Q4.  Labour market – Labour market prospects look very weak; claimant count is rising, and outflows have fallen. Proportion of temporary workers wanting permanent job growing.  Consumer – Confidence is shaky, indictors heading towards 2009 lows. Economic situation weighing on consumers, household belt- tightening set to continue.

17. Softening across the board, index of activity, 50 = no change Source: Markit Economics and ISM

18. Global outlook…. The good, the bad and the ugly GOOD Greek political wrangling – an end in sight? US Q3 better than expected. US manufacturing activity still positive Emerging market engine not spluttering yet. Commodity prices should head lower. Monetary authorities still have a bit of fire power. BAD European activity indicators signal contraction. German output sees consecutive monthly falls. Business confidence across ez tumbles. US consumers aren’t too cheery either. US labour market conditions have deteriorated. UGLY ITALY?

19. Where will we go from here? % annual change in GDP Source: Oxford Economics

20. But opportunities in new markets remains, % of UK exports and % annual GDP growth, 2010 Scope for greater in-roads into emerging markets Societal and environmental challenges also bring new market potential Scope for greater gains through collaboration Re-thinking sourcing and supply chain management – everything to gain? Source: National Statistics and Oxford Economics

21. A wider range of innovations, % of companies introducing innovation in past three years Strategies focus on value-addition and new market entry. Competition on the basis of research and design. Innovation across all activities a growing priority. Global look at locations of activities. But innovation/production link not easily severed. Service provision provides revenue potential – and cushion in difficult times. Source: EEF Innovation Monitor

22. Conclusion A more challenging period The recovery in the economy and manufacturing has entered a more challenging period since the start of the year growth flat in H1. A more uncertain environment Diving consumer confidence, euro-shakes, US wobbles and spreading global growth concerns – all increasing sources of uncertainty But still a more sustainable platform for growth Over the longer term, growth founded on higher investment and net exports offers a more sustainable platform for growth. Manufacturing is at the heart of this.