Global uncertainty leads to drop in growth expectations

GROWING numbers of Yorkshire manufacturers believe that the global economic uncertainty could damage their business, according to a new survey.

Terry Jones, partner and head of BDO in Yorkshire
Terry Jones, partner and head of BDO in Yorkshire

The study from accountants and business advisers BDO found that output expectations among manufacturers recorded their steepest monthly fall in September since May 2013. The fall came as a faltering global economy and worrying geopolitical developments rocked short-term growth expectations, according to BDO’s Business Trends report. The BDO Output Index, which predicts businesses’ growth expectations over the next three months, fell from 103.8 in August to 103.3 in September. This modest drop masks a sharp fall of 1.6 points in the BDO Output sub-index for manufacturers, which fell from 113.2 to 111.6.

Although the reading remains well above the 100.0 mark, indicating long-term growth, the findings suggest that a number of factors are making manufacturers more cautious. These include collapsing sentiment in the Eurozone, and a faltering US recovery. Weak and uneven global demand is also reducing cost pressures. The BDO Inflation Index fell for the fifth consecutive month to 96.6 in September – just above the 95.0 mark that separates inflation from deflation.

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Prolonged low wage growth is limiting upward cost pressures on labour-intensive services firms. The BDO Employment Index recorded its 13th consecutive rise in September, with hiring intentions reaching a new post-crisis high of 112.3, up from 111.2 in August. This indicates that the recent trend of falling unemployment is likely to continue, with firms expecting to increase hiring towards the end of the year.

Terry Jones, the head of BDO in Yorkshire, said: “With global conditions becoming increasingly challenging, it was only a matter of time before the stellar increases in economic growth recorded earlier this year came to an end. Given their reliance on exports, manufacturers have borne the brunt of weakening global demand but the effects of stuttering worldwide growth are obvious throughout the economy.

“The most noteworthy effect is falling cost pressures. Although presenting good news for company profits, on an economy-wide scale the trend is worrying as it brings the economy closer to the deflation scenario that has spooked European policymakers recently.”